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The creation of effective states in the OECD since 1870: The role of inequality


  • Madsen, Jakob B.
  • Wang, Cong
  • Steiner, Bodo


Research shows that state capacity is crucial for economic development, yet the impact of inequality on state capacity is not well understood. This paper examines the impact of income inequality on three key dimensions of state capacity, namely legal, fiscal and collective capacity using annual data for a core of 21 OECD countries over the period 1870–2013. We find that the marked reduction in inequality over most of the last century starting from 1916 was pivotal to the significant improvements in legal, fiscal and collective capacity in the OECD countries over the same period.

Suggested Citation

  • Madsen, Jakob B. & Wang, Cong & Steiner, Bodo, 2017. "The creation of effective states in the OECD since 1870: The role of inequality," European Journal of Political Economy, Elsevier, vol. 50(C), pages 106-121.
  • Handle: RePEc:eee:poleco:v:50:y:2017:i:c:p:106-121
    DOI: 10.1016/j.ejpoleco.2017.03.007

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    Cited by:

    1. Amjad Naveed & Cong Wang, 2018. "Can religion explain cross-country differences in inequality? A global perspective," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 50(3), pages 481-518, March.

    More about this item


    Inequality; Institutions; State capacity; OECD countries;

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development


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