The Impact of Economic Inequality on Economic Freedom

17 Pages Posted: 18 May 2014 Last revised: 9 Sep 2015

See all articles by Ryan Murphy

Ryan Murphy

Southern Methodist University (SMU)

Date Written: May 16, 2014

Abstract

This paper tests the hypothesis that the presence of economic inequality may lead to erosions of economic freedom. Using Economic Freedom of the World as a measure of free economic institutions, it finds that a one standard deviation increase in the gini coefficient reduces the presence of free economic institutions by 0.18 standard deviations. This effect is modest but not at all trivial, and the magnitude of the effect may be especially important in increasing the size of government. Surprisingly, the evidence is mixed for the effect of inequality on regulation, with modest evidence suggesting it may improve the regulatory environment. While many methods of reducing economic inequality involve restrictions on economic freedom, this evidence underscores the importance of stressing reforms free market proponents are confident will mitigate inequality.

Keywords: Economic Freedom, Inequality, Institutions

JEL Classification: D31, P1

Suggested Citation

Murphy, Ryan, The Impact of Economic Inequality on Economic Freedom (May 16, 2014). Cato Journal, Vol. 35, No. 1, 2015. Available at SSRN: https://ssrn.com/abstract=2438033 or http://dx.doi.org/10.2139/ssrn.2438033

Ryan Murphy (Contact Author)

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

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