Income Inequality, Capitalism, and Ethno-Linguistic Fractionalization
Jan‐Egbert SturmKOF Swiss Economic Institute, ETH Zurich, Leonhardstrasse 21, 8092 Zurich, Switzerland and CESifo Munich, Germany (e-mail: )Jakob de HaanDe Nederlandsche Bank, Amsterdam; University of Groningen, The Netherlands; CESifo, Munich, Germany; and KOF Swiss Economic Institute, Switzerland (e-mail: )
2015en
ABI
Abstract
We examine the relationship between capitalism and income inequality for a large sample of countries using an adjusted economic freedom index as proxy for capitalism. Our results suggest that there is no robust relationship between economic freedom and Gini coefficients based on gross income. Subsequently, we analyze the relationship between income redistribution and ethno-linguistic fractionalization. We find that the impact of ethno-linguistic fractionalization on income redistribution is conditional on the level of economic freedom: countries that have a high degree of fractionalization redistribute income less, while capitalist countries that have a low degree of fractionalization redistribute income more.
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