Does Fiscal Policy Affect Social Welfare? Panel Data Evidence From The Baltic States

This paper aims to explore the influence of fiscal measures (value added taxes, excises and other consumption taxes, personal income taxes, net social contributions), social (human development index, governance integrity) and economic (government expenditure) variables on income inequality as measured by the Gini coefficient. The selected sample covered Baltic States, namely Lithuania, Latvia, and Estonia, over 2003-2019. The outcomes of panel data regression models provide support that fiscal variables assessed by indirect taxes lead to income inequality, along with social contributions that spur the revenue disparity. However, personal income taxes do not statistically influence income redistribution. Besides, the quantitative outcomes reveal that government expenditure lowers the income inequality. The paper emphasizes on the impact of fiscal policy on the social welfare by taking in consideration a clear and concise approach based on an efficient combination of variables proving the implementation of successful public policies across the Baltic States.