Income Distribution, Political Instability, and Investment

Alberto Alesina and Roberto Perotti

No 294816, Institute for Policy Reform Working Paper Series from Institute for Policy Reform

Abstract: This paper successfully tests on a sample of 64 countries for the period 1960-1985 the following hypotheses. Income inequality, by fueling social discontent, increases socio-political instability. The latter, by creating uncertainty in the politico-economic environment, reduces investment. As a consequence, income inequality and investment are inversely related. Since investment is a primary engine of growth, this paper identifies a channel for the frequently noticed inverse relation between income inequality and growth. We measure socio-political instability with a composite index which captures the occurrence of more or less violent phenomena of political unrest. We test our hypotheses by estimating a two-equation model in which the endogenous variables are investment and the index of socio-political instability. Our results are robust to sensitivity analysis on the specification of the model, and are unchanged when the model is estimated using robust regression techniques.

Keywords: Consumer/Household Economics; Political Economy; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 41
Date: 1992-09
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Related works:
Journal Article: Income distribution, political instability, and investment (1996)
Working Paper: Income Distribution, Political Instability, and Investment (1996)
Working Paper: Income Distribution, Political Instability, and Investment (1993)
Working Paper: Income Distribution, Political Instability, and Investment (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iprwps:294816

DOI: 10.22004/ag.econ.294816

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