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Income Inequality, Capitalism and Ethno-linguistic Fractionalization

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 and Gini coefficients based on gross-income as proxy for income inequality. Our results suggest that there is no robust relationship between economic freedom and income inequality. In addition, we analyze the relationship between income redistribution (measured by the ratio of the income distribution resulting from market processes and the income distribution after 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 have less income redistribution, while capitalist countries that have a low degree of fractionalization have more income distribution.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 14-370.

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Length: 21 pages
Date of creation: Dec 2014
Handle: RePEc:kof:wpskof:14-370
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  1. John Carter, 2007. "An Empirical Note on Economic Freedom and Income Inequality," Public Choice, Springer, vol. 130(1), pages 163-177, January.
  2. 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.
  3. 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. 43(1).
  4. Berggren, Niclas, 1999. "Economic Freedom and Equality: Friends or Foes?," Public Choice, Springer, vol. 100(3-4), pages 203-223, September.
  5. 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.
  6. 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.
  7. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," LIS Working papers 496, LIS Cross-National Data Center in Luxembourg.
  8. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 90(2), pages 231-242.
  9. 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.
  10. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  11. 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.
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