Inequality And Property Rights, Revisited

While the importance of institutions for growth and development has been firmly established, empirical assessments of their effect on income distributions remain largely inconclusive. In this study we revisit this issue, looking in particular at how property rights affect inequality. To this end, we use a state-space model to combine all available indicators tracking the protection of property rights into an index that covers 190 countries over the period 1994-2014. Using dynamic panel estimations based on the GMM-system and the X-differencing techniques, we find that increases in property rights translate into a worsening of distributional outcome. In line with existing studies, we find no strong evidence to show that democracy exerts an independent, direct effect on net income inequality. However, the estimated coefficient of the interaction term between property rights and democracy is negative and statistically significant; thus suggesting that in high democracies, property rights significantly decrease net-income inequality. These effects effects seem to play through the government’s redistribution as market-income inequality is not affected by property rights, democracy or their interaction. Our findings remain robust to specification, methodology, data structure and sample changes.