Left-Wing Political Strength, Inclusive Institutions, and the Evolution of Capitalist Systems

Xingan Teng

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines how left-wing political strength shapes the evolution of capitalist systems through the lens of income compositional inequality (IFC). Using LIS microdata for nearly 40 countries from 1978–2022, I construct an unbalanced panel of IFC and estimate two-way fixed-effects models with Driscoll–Kraay standard errors, complemented by dynamic panel GMM and a fuzzy RDD around close elections. Results show that stronger left representation reduces IFC and pushes economies toward liberal capitalism; a 10-percentage-point increase in left strength lowers IFC by about 0.0079—roughly 7.5% of the sample mean. Political checks and balances attenuate this distributive effect, while rule-of-law and property-rights institutions amplify it. Channel analysis based on the pseudo-Gini of capital indicates that the main pathway operates via reductions in capital inequality. The findings highlight that “inclusive institutions” are internally heterogeneous and interact with partisan power, offering a more granular account of distributive dynamics within democracies.

Keywords: Income composition inequality; Left-wing strength; Inclusive institutions; Capitalist systems (search for similar items in EconPapers)
JEL-codes: D31 D33 D72 P16 P51 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-his, nep-hme and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:126506

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