Reports

Income Distribution, Political Instability and Investment

Alesina, Alberto; Perotti, Roberto

This paper successfully tests on a sample of 72 countries for the periods 1960-85 and 1970-85 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 and therefore economic growth. As a consequence, income inequality and economic growth are inversely related. We measure socio-political instability with a composite index which captures the occurrence of more or less violent phenomena of political unrest. Our hypotheses are tested by estimating a two equation model in which the endogenous variables are investment and our variable of socio-political instability. Our results are robust to sensitivity analysis on the specification of the model and are essentially unchanged when the model is estimated using robust regression techniques.

Subjects

Files

More About This Work

Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 625
Published Here
February 17, 2011

Notes

September 1992.