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Income Inequality, Capitalism, and Ethno-linguistic Fractionalization

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  • Jan-Egbert Sturm
  • Jakob De Haan

Abstract

We examine the relationship between capitalism and income inequality for a large sample of countries using an adjusted economic freedom index as proxy for capitalism. Our results suggest that there is no robust relationship between economic freedom and Gini coefficients based on gross income. Subsequently, we analyze the relationship between income redistribution and ethno-linguistic fractionalization. We find that the impact of ethno-linguistic fractionalization on income redistribution is conditional on the level of economic freedom: countries that have a high degree of fractionalization redistribute income less, while capitalist countries that have a low degree of fractionalization redistribute income more.

Suggested Citation

  • Jan-Egbert Sturm & Jakob De Haan, 2015. "Income Inequality, Capitalism, and Ethno-linguistic Fractionalization," American Economic Review, American Economic Association, vol. 105(5), pages 593-597, May.
  • Handle: RePEc:aea:aecrev:v:105:y:2015:i:5:p:593-97
    Note: DOI: 10.1257/aer.p20151112
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    References listed on IDEAS

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    1. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    2. Berggren, Niclas, 1999. "Economic Freedom and Equality: Friends or Foes?," Public Choice, Springer, vol. 100(3-4), pages 203-223, September.
    3. Milanovic, Branko, 2000. "The median-voter hypothesis, income inequality, and income redistribution: an empirical test with the required data," European Journal of Political Economy, Elsevier, vol. 16(3), pages 367-410, September.
    4. Desmet, Klaus & Ortuño-Ortín, Ignacio & Wacziarg, Romain, 2012. "The political economy of linguistic cleavages," Journal of Development Economics, Elsevier, vol. 97(2), pages 322-338.
    5. Klaus Desmet & Ignacio Ortuño-Ortín & Shlomo Weber, 2009. "Linguistic Diversity and Redistribution," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1291-1318, December.
    6. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," LIS Working papers 496, LIS Cross-National Data Center in Luxembourg.
    7. John Carter, 2007. "An Empirical Note on Economic Freedom and Income Inequality," Public Choice, Springer, vol. 130(1), pages 163-177, January.
    8. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 90(2), pages 231-242.
    9. Bergh, Andreas & Nilsson, Therese, 2010. "Do liberalization and globalization increase income inequality?," European Journal of Political Economy, Elsevier, vol. 26(4), pages 488-505, December.
    10. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    11. Bennett, Daniel L. & Vedder, Richard K., 2013. "A Dynamic Analysis of Economic Freedom and Income Inequality in the 50 U.S. States: Empirical Evidence of a Parabolic Relationship," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 0(Issue 1).
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    Cited by:

    1. Grechyna, Daryna, 2015. "On Determinants of Political Polarization," MPRA Paper 67611, University Library of Munich, Germany.
    2. repec:eee:poleco:v:50:y:2017:i:c:p:171-195 is not listed on IDEAS
    3. repec:eee:jimfin:v:85:y:2018:i:c:p:278-290 is not listed on IDEAS
    4. Grechyna, Daryna, 2016. "On the determinants of political polarization," Economics Letters, Elsevier, vol. 144(C), pages 10-14.
    5. Nikolaev, Boris & Boudreaux, Christopher & Salahodjaev, Rauf, 2017. "Are individualistic societies less equal? Evidence from the parasite stress theory of values," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 30-49.
    6. Krieger, Tim & Meierrieks, Daniel, 2016. "Political capitalism: The interaction between income inequality, economic freedom and democracy," European Journal of Political Economy, Elsevier, vol. 45(C), pages 115-132.
    7. Bumann, Silke & Lensink, Robert, 2016. "Capital account liberalization and income inequality," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 143-162.
    8. repec:pal:compes:v:59:y:2017:i:4:d:10.1057_s41294-017-0037-1 is not listed on IDEAS
    9. repec:eee:poleco:v:52:y:2018:i:c:p:1-17 is not listed on IDEAS
    10. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.
    11. Alberto Montagnoli & Mirko Moro & Robert Wright, 2016. "Financial literacy and attitudes to redistribution," Working Papers 1605, University of Strathclyde Business School, Department of Economics.
    12. Fabio Padovano & Francesco Scervini & Gilberto Turati, 2016. "How do Governments Fare about Redistribution? New Evidence on the Political Economy of Redistribution," CESifo Working Paper Series 6137, CESifo Group Munich.
    13. Corneo, Giacomo & Neher, Frank, 2015. "Democratic redistribution and rule of the majority," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 96-109.
    14. Islam, Md. Rabiul & Madsen, Jakob B. & Doucouliagos, Hristos, 2018. "Does inequality constrain the power to tax? Evidence from the OECD," European Journal of Political Economy, Elsevier, vol. 52(C), pages 1-17.
    15. Frost, Jon & van Stralen, René, 2018. "Macroprudential policy and income inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 278-290.
    16. repec:bla:manchs:v:85:y:2017:i:1:p:88-105 is not listed on IDEAS
    17. Christophe Muller, 2016. "Ethnic inequality and community activities in Indonesia," WIDER Working Paper Series 170, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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