Government spending impacts welfare and inequality more than previously thought.
Governments can impact welfare and inequality differently. A study used a model to analyze how fiscal policies affect income distribution. The optimal debt and social transfer levels are lower than what EU countries have had. Larger governments lead to worse welfare inequality. Shifting unproductive spending to transfers is good for welfare and inequality up to a point. Shifting to productive spending is always good for welfare. Transfers for productive spending are good if public investment is high.