Working Paper: CEPR ID: DP4739
Authors: Alberto Chong; Mark Gradstein
Abstract: This Paper presents theory and evidence on the relationship between inequality and institutional quality. We exhibit a model in which the two dynamically reinforce each other and set to test this relationship with a broad array of institutional measures. We establish the double causality between institutional strength and a more equal distribution of income and show its robustness to different data sources that cover various time-spans and to changes in specification.
Keywords: causality; governance; inequality; institutions
JEL Codes: D70; O15; O17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low institutional quality (O17) | higher income inequality (D31) |
| high income inequality (D31) | weakened institutions (O17) |
| institutional quality (L15) | income distribution (D31) |
| income inequality (D31) | institutional quality (L15) |
| low institutional quality (O17) | high income inequality (D31) |