The Link Between Economic and Political Inequality in Cross-National Perspective

It is widely believed that there exists a debilitating feedback cycle linking economic inequality and political inequality. However, there has been a lack of empirical evidence about this association, particularly, in cross-national comparative research. It is largely because cross-national measures of political inequality are underdeveloped. To fill this gap, this study introduces the Political Inequality Index (PII) and the Political Power Inequality Index (PPII). This inquiry then investigates the two-way causal relationship between economic and political inequality. In the first causal direction, net income inequality is used as a proxy for economic inequality, while in the reverse causal linkage political inequality is supposed to influence market income inequality and redistribution separately, as net income inequality is considered as an outcome of the two different distributional stages. With respect to estimation techniques, a system GMM estimator for a dynamic panel data model is mainly used to address endogeneity. The findings show that net income inequality does not appear to affect political inequality significantly, while political inequality seems to contribute to economic inequality by influencing redistribution rather than market income inequality.