INSTITUTIONAL CAPACITY AND THE INEQUALITY EFFECTIVENESSOF FISCAL POLICY IN ADDRESSING INCOME REDISTRIBUTION FORDEVELOPED AND DEVELOPING NATIONS

Income inequality remains a critical challenge worldwide, affecting both developed and developing economies.This study evaluates the role of institutional capacity in enhancing the redistributive effectiveness of fiscal policy in reducing income disparities.Using panel data from 60 countries (30 developed, 30 developing) over 2002-2023, the analysis investigates the interaction between fiscal measures (e.g., progressive taxation, targeted spending) and institutional quality (e.g., administrative efficiency, governance integrity).Findings reveal that robust institutions amplify the impact of fiscal interventions, leading to more equitable outcomes, particularly in developed economies.Conversely, weaker institutions in developing countries limit redistributive efforts, often exacerbating inequality.The results underscore the necessity of integrating institutional reforms with fiscal policies to achieve sustainable equity.This research provides theoretical insights, empirical evidence and actionable recommendations for policymakers.Also, this study is one of the few that systematically compares the impact of institutional capacity on income inequality between developed and developing countries.While existing literature frequently examines the effects of fiscal policies on inequality, it lacks a comprehensive analysis detailing how these effects differ based on institutional capacity.This study fills this gap by providing new empirical findings.