On the Ambiguous Economic Freedom-Inequality Relationship

28 Pages Posted: 17 Jul 2014 Last revised: 22 Jul 2015

Date Written: July 6, 2015

Abstract

Previous research on the relationship between capitalistic institutions and income inequality has produced mixed results. We provide a short survey of this literature, identifying potential causes for this empirical heterogeneity. Next, we replicate the results from two of the relevant studies using six alternative measures of income inequality for an updated dataset of up to 112 countries over the period 1970-2010. Most notably, we use the latest release of the Standardized World Income Inequality Dataset, which allows us to account for the uncertainty of the estimated Gini coefficients. We find that the results of previous studies are sensitive to the choice of country sample, time period and/or inequality measure used. Finally, we use a novel econometric approach, fractional polynomial regression analysis, to investigate if a non-linear relationship between economic freedom and income inequality exists. The results are sensitive to the measure of inequality used. We conclude with suggestions for future research in the area.

Keywords: Capitalistic Political Economy; Economic Freedom; Fractional Polynomial Regression, Income Inequality, Institutions

JEL Classification: C82, D30, D63, P16

Suggested Citation

Bennett, Daniel and Bennett, Daniel, On the Ambiguous Economic Freedom-Inequality Relationship (July 6, 2015). Available at SSRN: https://ssrn.com/abstract=2467222 or http://dx.doi.org/10.2139/ssrn.2467222

Daniel Bennett (Contact Author)

Patrick Henry College ( email )

Daniel Bennett

Baylor University ( email )

Waco, TX 76706
United States

HOME PAGE: http://www.BennettEcon.com

Register to save articles to
your library

Register

Paper statistics

Downloads
71
rank
307,181
Abstract Views
416
PlumX