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Inequality, Fiscal Capacity and the Political Regime: Lessons from the Post-Communist Transition

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  • Christopher Gerry
  • Tomasz Mickiewicz

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Abstract

Using panel data for twenty-seven post-communist economies between 1987-2003, we examine the nexus of relationships between inequality, fiscal capacity (defined as the ability to raise taxes efficiently) and the political regime. Investigating the impact of political reform we find that full political freedom is associated with lower levels of income inequality. Under more oligarchic (authoritarian) regimes, the level of inequality is conditioned by the state’s fiscal capacity. Specifically, oligarchic regimes with more developed fiscal systems are able to defend the prevailing vested interests at a lower cost in terms of social injustice. This empirical finding is consistent with the model developed by Acemoglu (2006). We also find that transition countries undertaking early macroeconomic stabilisation now enjoy lower levels of inequality; we confirm that education fosters equality and the suggestion of Commander et al (1999) that larger countries are prone to higher levels of inequality.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp831.

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Length: pages
Date of creation: 01 Jul 2006
Date of revision:
Handle: RePEc:wdi:papers:2006-831

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Keywords: income inequality; democracy; oligarchy; fiscal capacity; economic reform; transition;

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References

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  1. Simon Commander & Andrei Tolstopiantenko & Ruslan Yemtsov, 1997. "Channels of Redistribution: Inequality and Poverty in the Russian Transition," William Davidson Institute Working Papers Series 42, William Davidson Institute at the University of Michigan.
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  23. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
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Cited by:
  1. Artur Radziwill & Pawel Smietanka, 2009. "EU's Eastern Neighbours: Institutional Harmonisation and Potential Growth Bonus," CASE Network Studies and Analyses 0386, CASE-Center for Social and Economic Research.

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