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.
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