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Summary: The purpose of this paper is to shed more light on the effects of changes in quality of economic, legal and political institutions on income inequality in the advanced countries over the last two decades. Using the robust panel model on a sample of 21 OECD countries, it is found that the impact of elitization of society is more pronounced than the impact of unionization on income redistribution, but both effects are less expressed in comparison to the influence of institutional changes on redistribution. In a globalized economy, insufficient redistribution and high inequality might be interpreted as the consequence of institutional inertia to disruptive technological and business changes.
Key words: Income inequality, Institutions, Redistribution, Elites.
JEL: D63, H23.
(ProQuest: ... denotes formulae omitted.)
Since the 1980s, most of the developed countries have faced the problem of rising income inequality. Consequently, inequality and redistribution issues started to dominate in academic and political debates, resulting in different interpretations of causes as well as consequences of distributional effects. From these discussions emerged the different opinions on what the state can and cannot do in the area of promoting collective wellbeing.
Although new causes of income inequality have been recognized, such as globalization, low-skilled biased technological change or migration, there is still a prevailing opinion that rising inequality can be controlled by improving existing institutions. However, it is often neglected that the worsening of income distribution is associated not only with the deepening of existing, but also with the emergence of new social asymmetries that require new institutional environment and arrangements.
Prompted by such considerations, this paper emphasizes the importance of institutional changes for understanding distributional effects. The paper is divided into the five parts. The first part reviews selected literature that connects income inequality to institutional changes and power relations in the society. The second part explains the theoretical framework from which is derived the research hypotheses about the relationship between redistribution and institutional changes. Data and econometric methodology are contained in the third part. Interpretation of empirical findings is given in the fourth part, while the fifth part is devoted to concluding remarks.
1.Literature Review
The increase in income inequality in the advanced countries during the past three decades has resulted in a large number,...