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The determinants of income inequality in OECD countries
[Political partisanship and welfare state reform in advanced industrial societies]

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  • Pasquale Tridico

Abstract

The objective of this paper is to identify the determinants of the increase in income inequality that OECD countries have experienced over the past two decades. My hypothesis is that along with the financialisation of economies that has taken place since 1990, inequality increased because labour flexibility intensified, labour market institutions weakened as trade unions lost power, and public social spending started to retrench and did not compensate for the vulnerabilities created by the globalisation process. Using data from 25 high-income OECD countries from 1990 to 2013, I empirically evaluate this hypothesis. My results clearly suggest that the increase in inequality over the past two decades is caused by an increase in financialisation, a deepening of labour flexibility, the weakening of trade unions and the retrenchment of the welfare state.

Suggested Citation

  • Pasquale Tridico, 2018. "The determinants of income inequality in OECD countries [Political partisanship and welfare state reform in advanced industrial societies]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(4), pages 1009-1042.
    • Handle: RePEc:oup:cambje:v:42:y:2018:i:4:p:1009-1042.
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    File URL: http://hdl.handle.net/10.1093/cje/bex069
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    1. Thomas Goda & Photis Lysandrou, 2014. "The contribution of wealth concentration to the subprime crisis: a quantitative estimation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(2), pages 301-327.
    2. Francesca Gastaldi & Paolo Liberati, 2011. "Economic integration and government size: a review of the empirical literature," Financial Theory and Practice, Institute of Public Finance, vol. 35(3), pages 327-384.
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    Cited by:

    1. Antonelli, Cristiano & Tubiana, Matteo, 2020. "Income inequality in the knowledge economy," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 153-164.
    2. Stefano Di Bucchianico, 2020. "A note on financialization from a Classical-Keynesian standpoint," Department of Economics University of Siena 824, Department of Economics, University of Siena.
    3. Mert Akyuz & Ghislain Nono Gueye & Cagin Karul, 2022. "Long-run dynamics between trade liberalization and income inequality in the European Union: a second generation approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 769-792, August.
    4. Kim, Hyoungjong & Rhee, Dong-Eun, 2022. "The effects of asset prices on income inequality: Redistribution policy does matter," Economic Modelling, Elsevier, vol. 113(C).
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    6. Rajaguru, Gulasekaran & Srivastava, Sadhana & Sen, Rahul & Mukhopadhaya, Pundarik, 2023. "Does globalization drive long-run inequality within OECD countries? A guide to policy making," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 469-493.
    7. Christopher A. Hartwell & Roman Horvath & Eva Horvathova & Olga Popova, 2019. "Democratic Institutions, Natural Resources, and Income Inequality," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(4), pages 531-550, December.
    8. Sangyup Choi & Jeeyeon Phi, 2022. "Impact of Uncertainty Shocks on Income and Wealth Inequality," Working papers 2022rwp-196, Yonsei University, Yonsei Economics Research Institute.
    9. Antonelli, Cristiano & Tubiana, Matteo, 2023. "The rate and direction of technological change and wealth and income inequalities in advanced countries," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    10. Brett, Craig & Sarkar, Saikat, 2022. "Financial bubbles and income inequality," MPRA Paper 112070, University Library of Munich, Germany.
    11. Uzar, Umut & Eyuboglu, Kemal & Akdag, Saffet & Alola, Andrew Adewale, 2023. "Causal inference of financial development and institutional quality across the globe," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 626(C).
    12. Glauco De Vita & Yun Luo, 2021. "Financialization, household debt and income inequality: Empirical evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1917-1937, April.
    13. Giorgio Liotti, 2022. "Labour Market Regulation and Youth Unemployment in the EU-28," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(1), pages 77-103, March.
    14. Andrea Coveri & Mario Pianta, 2019. "The Structural Dynamics of Income Distribution:Technology, Wages and Profits," Working Papers 1901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2019.
    15. de Moraes, Claudio Oliveira & Roquete, Raphael Moses & Gawryszewski, Gustavo, 2023. "Who needs cash? Digital finance and income inequality," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 84-93.
    16. Ioanna Konstantakopoulou, 2020. "Further Evidence on Import Demand Function and Income Inequality," Economies, MDPI, vol. 8(4), pages 1-12, October.
    17. Tusawar Iftikhar Ahmad & Abdul Rehman & Abid Mehmood & Nosheena Sattar, 2022. "Nexus among Democracy, Human Resource Development, and Income Inequality: Three Stage Least Square Estimation for 47 Developing Economies," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(4), pages 607-620, December.
    18. Benoît Walraevens, 2021. "The triumph of injustice. Wealth, tax evasion and democracy [Inégalités économiques, justice fiscale et démocratie aux USA]," Post-Print hal-03554121, HAL.
    19. Tomáš Domonkos, 2020. "Nerovnosti a ekonomický rast v krajinách Európskej únie [Inequalities and Economic Growth in EU Countries]," Politická ekonomie, Prague University of Economics and Business, vol. 2020(4), pages 405-422.
    20. Abebe Hailemariam & Sefa Awaworyi Churchill & Russell Smyth & Kingsley Tetteh Baako, 2021. "Income inequality and housing prices in the very long‐run," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 295-321, July.
    21. Philip Arestis & Peter Phelps, 2019. "A panel analysis of Brazilian regional inequality," Environment and Planning A, , vol. 51(7), pages 1558-1585, October.
    22. Di Bucchianico, Stefano, 2019. "The Impact of Financialization on the Rate of Profit: A Discussion," Centro Sraffa Working Papers CSWP36, Centro di Ricerche e Documentazione "Piero Sraffa".

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