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Political and Economic Inequities and the Shaping of Institutions and Redistribution
Author(s) -
Chong Alberto,
Gradstein Mark
Publication year - 2017
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12206
Subject(s) - redistribution (election) , economics , inequality , politics , economic inequality , redistribution of income and wealth , panel data , investment (military) , development economics , macroeconomics , political science , econometrics , unemployment , mathematical analysis , mathematics , law
This article studies the joint effect of political and economic inequalities on redistributive taxation and institutional quality. The theoretical model suggests that income inequality, coupled with political bias in favor of the rich, decreases redistribution and lowers institutional quality. The effect of the former is to increase productive investment, and the effect of the latter is to decrease it—with resulting ambiguous implications for economic growth. Testing these predictions empirically in a panel of countries, we find that inequality has a negative effect on both institutional quality and redistribution.