Political regimes and income inequality

Levels of income inequality within countries vary substantially throughout the world, from the famously egalitarian Scandinavian countries to the many highly unequal countries in Latin America and Africa.

Income inequality is highly stable over time, but may change abruptly, as in the former Soviet Union, or gradually, as in the United States and China. These observations have driven active research into the determinants of inequality.

This paper builds and tests a quantitative model based upon social and political theories of inequality and political regimes. The proposed model relates three variables to a measure of income inequality: the size of the “selectorate,” the number of people who actually choose political leaders; a measure of bias in public spending towards redistribution over reinvestment; and ethnolinguistic fragmentation.

The model performs well under statistical tests, supporting the conclusion that political regimes play an important role in determining levels of income inequality within countries.

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