IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v40y1996i6p1203-1228.html
   My bibliography  Save this article

Income distribution, political instability, and investment

Author

Listed:
  • Alesina, Alberto
  • Perotti, Roberto

Abstract

This paper successfully tests on a sample of 70 countries for the period 1960-85 the following hypotheses. Income inequality, by fueling social discontent, increases socio-political instability. The latter, by creating uncertainty in the politico-economic environment, reduces investment. As a consequence, income inequality and investment are inversely related. Since investment is a primary engine of growth, this paper identifies a channel for an inverse relationship between income inequality and growth. We measure socio-political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two-equation model in which the endogenous variables are investment and an index of socio-political instability. Our results are robust to sensitivity analysis on the specification of the model and the measure of political instability, and are unchanged when the model is estimated using robust regression techniques.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    • Handle: RePEc:eee:eecrev:v:40:y:1996:i:6:p:1203-1228
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0014-2921(95)00030-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ozler, Sule & Rodrik, Dani, 1992. "External shocks, politics and private investment : Some theory and empirical evidence," Journal of Development Economics, Elsevier, vol. 39(1), pages 141-162, July.
    2. Abhijit V. Banerjee & Andrew F. Newman, 1991. "Risk-Bearing and the Theory of Income Distribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 211-235.
    3. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(4), pages 755-776.
    4. Ingram, Gregory, 1992. "Social indicators and productivity convergence in developing countries," Policy Research Working Paper Series 894, The World Bank.
    5. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    6. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    7. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    8. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
    9. Benhabib, J. & Spiegel, M.M., 1992. "The Role of Human Capital and Political Instability in Economic Development," Working Papers 92-24, C.V. Starr Center for Applied Economics, New York University.
    10. Venieris, Yiannis P & Gupta, Dipak K, 1986. "Income Distribution and Sociopolitical Instability as Determinants of Savings: A Cross-sectional Model," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 873-883, August.
    11. Krasker, William S. & Kuh, Edwin & Welsch, Roy E., 1983. "Estimation for dirty data and flawed models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 11, pages 651-698, Elsevier.
    12. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    13. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    14. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1993. "What do governments buy?," CEMA Working Papers 513, China Economics and Management Academy, Central University of Finance and Economics.
    15. Allan Meltzer & Scott Richard, 1983. "Tests of a rational theory of the size of government," Public Choice, Springer, vol. 41(3), pages 403-418, January.
    16. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    17. Berg, Andrew & Sachs, Jeffrey, 1988. "The debt crisis structural explanations of country performance," Journal of Development Economics, Elsevier, vol. 29(3), pages 271-306, November.
    18. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    19. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    20. Alesina, Alberto & Özler, Sule & Roubini, Nouriel & Swagel, Phillip, 1996. "Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
    21. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
    22. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    23. Sebastian Edwards & Guido Tabellini, 1991. "Political Instability, Political Weakness and Inflation: An Empirical Analysis," NBER Working Papers 3721, National Bureau of Economic Research, Inc.
    24. Benhabib, Jess & Rustichini, Aldo, 1991. "Social Conflict, Growth and Income Distribution," Working Papers 91-22, C.V. Starr Center for Applied Economics, New York University.
    25. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-555, June.
    26. Sule Ozler & Guido Tabellini, 1991. "External Debt and Political Instability," NBER Working Papers 3772, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alesina, Alberto & Perotti, Roberto, 1994. "The Political Economy of Growth: A Critical Survey of the Recent Literature," The World Bank Economic Review, World Bank, vol. 8(3), pages 351-371, September.
    2. Ugo Panizza, 1999. "Desigualdad del ingreso y crecimiento económico: elementos de juicio de datos de USA," Research Department Publications 4179, Inter-American Development Bank, Research Department.
    3. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482, Elsevier.
    4. Panizza, Ugo, 2002. "Income Inequality and Economic Growth: Evidence from American Data," Journal of Economic Growth, Springer, vol. 7(1), pages 25-41, March.
    5. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92, National Bureau of Economic Research, Inc.
    6. Holger Strulik, 2007. "A distributional theory of government growth," Public Choice, Springer, vol. 132(3), pages 305-318, September.
    7. Saint Paul, Gilles & Verdier, Thierry, 1997. "Power, Distributive Conflicts, and Multiple Growth Paths," Journal of Economic Growth, Springer, vol. 2(2), pages 155-168, July.
    8. Chang, Roberto, 1998. "Political party negotiations, income distribution, and endogenous growth," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 227-255, April.
    9. Jess Benhabib & Mark M. Spiegel, 1997. "Growth and investment across countries," Working Papers in Applied Economic Theory 97-03, Federal Reserve Bank of San Francisco.
    10. Seher Gülşah Topuz, 2022. "The Relationship Between Income Inequality and Economic Growth: Are Transmission Channels Effective?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 162(3), pages 1177-1231, August.
    11. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
    12. Demir, Firat, 2006. "Volatility of short term capital flows and socio-political instability in Argentina, Mexico and Turkey," MPRA Paper 1943, University Library of Munich, Germany.
    13. Mehmet Balcilar & Rangan Gupta & Wei Ma & Philton Makena, 2021. "Income inequality and economic growth: A re‐examination of theory and evidence," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 737-757, May.
    14. Chen, Baizhu & Feng, Yi, 1996. "Some political determinants of economic growth: Theory and empirical implications," European Journal of Political Economy, Elsevier, vol. 12(4), pages 609-627, December.
    15. Quadrini, Vincenzo, 1999. "Growth, learning and redistributive policies," Journal of Public Economics, Elsevier, vol. 74(2), pages 263-297, November.
    16. Martin Baur, 2010. "Politics and Income Distribution," Chapters, in: Neri Salvadori (ed.), Institutional and Social Dynamics of Growth and Distribution, chapter 3, Edward Elgar Publishing.
    17. Alcántar-Toledo, Javier & Venieris, Yannis P., 2014. "Fiscal policy, growth, income distribution and sociopolitical instability," European Journal of Political Economy, Elsevier, vol. 34(C), pages 315-331.
    18. Christian Bredemeier, 2014. "Imperfect information and the Meltzer-Richard hypothesis," Public Choice, Springer, vol. 159(3), pages 561-576, June.
    19. Paul J. Zak, 2002. "Institutions, Property Rights, and Growth," Recherches économiques de Louvain, De Boeck Université, vol. 68(1), pages 55-73.
    20. Christophe Ehrhart, 2009. "The effects of inequality on growth: a survey of the theoretical and empirical literature," Working Papers 107, ECINEQ, Society for the Study of Economic Inequality.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:40:y:1996:i:6:p:1203-1228. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.