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Left-Wing Political Strength, Inclusive Institutions, and the Evolution of Capitalist Systems

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  • Teng, Xingan

Abstract

This paper examines how left-wing political strength shapes the evolution of capitalist systems through the lens of income compositional inequality (IFC). Using LIS microdata for nearly 40 countries from 1978–2022, I construct an unbalanced panel of IFC and estimate two-way fixed-effects models with Driscoll–Kraay standard errors, complemented by dynamic panel GMM and a fuzzy RDD around close elections. Results show that stronger left representation reduces IFC and pushes economies toward liberal capitalism; a 10-percentage-point increase in left strength lowers IFC by about 0.0079—roughly 7.5% of the sample mean. Political checks and balances attenuate this distributive effect, while rule-of-law and property-rights institutions amplify it. Channel analysis based on the pseudo-Gini of capital indicates that the main pathway operates via reductions in capital inequality. The findings highlight that “inclusive institutions” are internally heterogeneous and interact with partisan power, offering a more granular account of distributive dynamics within democracies.

Suggested Citation

  • Teng, Xingan, 2025. "Left-Wing Political Strength, Inclusive Institutions, and the Evolution of Capitalist Systems," MPRA Paper 126506, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:126506
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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