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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 adjust ed economic freedom index as proxy for capitalism and Gini coefficients based on gross-income as proxy for income inequality. Our results suggest that ther e is no robust relations hip between economic freedom and income inequality. In add ition, we analyze the relationship between income redistribution (measured by the ratio of the income distribution resulting from market processes and the income distributi on 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 degr ee of fractionalization have more income distribution.

Suggested Citation

  • Jan-Egbert Sturm & Jakob de Haan, 2014. "Income inequality, capitalism and ethno-linguistic fractionalization," KOF Working papers 14-370, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:14-370

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    References listed on IDEAS

    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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    Cited by:

    1. Grechyna, Daryna, 2015. "On Determinants of Political Polarization," MPRA Paper 67611, University Library of Munich, Germany.
    2. Grechyna, Daryna, 2016. "On the determinants of political polarization," Economics Letters, Elsevier, vol. 144(C), pages 10-14.
    3. 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.
    4. 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.
    5. Bumann, Silke & Lensink, Robert, 2016. "Capital account liberalization and income inequality," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 143-162.
    6. repec:pal:compes:v:59:y:2017:i:4:d:10.1057_s41294-017-0037-1 is not listed on IDEAS
    7. Jakob de Haan & Jan-Egbert Sturm, 2016. "Finance and income inequality: A review and new evidence," KOF Working papers 16-410, KOF Swiss Economic Institute, ETH Zurich.
    8. Alberto Montagnoli & Mirko Moro & Robert Wright, 2016. "Financial literacy and attitudes to redistribution," Working Papers 1605, University of Strathclyde Business School, Department of Economics.
    9. 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.
    10. Corneo, Giacomo & Neher, Frank, 2015. "Democratic redistribution and rule of the majority," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 96-109.
    11. Md. Rabiul Islam & Jakob Brochner Madsen & Hristos Doucouliagos, 2016. "Does Inequality Constrain the Power to Tax? Evidence from the OECD," Monash Economics Working Papers 29-16, Monash University, Department of Economics.
    12. repec:bla:manchs:v:85:y:2017:i:1:p:88-105 is not listed on IDEAS
    13. 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


    Income inequality; Redistribution; Economic freedom; Ethno-linguistic fractionalization;

    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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