The effect of public debts on income distribution: A sample of European Union transition economies

It has been naturally inevitable for the states that adopt the principle of modern social state today to make more public expenditures due to the increase in their duties and functions in the economic field. Especially underdeveloped and developing countries may appeal to borrowings as an alternative resource to tax revenues because the tax revenues are not sufficient for financing the increasing public expenditures. Unlike taxes, repayment of public expenditures with their capital and interest together at the deadline and especially high interest rate and some tax advantages may lead to the inequality in income distribution, i.e. income injustice. Direct effects (positive and negative) of public borrowing on income distribution and its indirect effects on some economic factors may vary depending on the factors such as the resource, date, interest rate, use and amount of the debt. The effect of public debts and economic growth on income distribution in 10 European Union transition economies in 2007-2017 period was analyzed in this study using panel data analysis method. As a result of the study, a positive relationship was determined between the dependent variable, income distribution (representative Gini coefficient) and the independent variable, public debts, in other words, it was determined that public debts increased the income inequality. However, a negative relationship was determined between the control variable, economic growth and income distribution, in other words, it was determined that economic growth reduced the income inequality. In addition, according to the conducted causality test result, a significant and bi-directional causality was determined between borrowing and income distribution and borrowing and growth; however, no causality was determined between economic growth and income distribution. Key Words: Public Debts, Ekonomic Growth, Income Distribution, Panel Data Analysis