Inequality, fiscal capacity and the political regime: lessons from the post-communist transition

Christopher J. Gerry, Tomasz Mickiewicz

Research output: Working paper

Abstract

Using panel data for twenty-seven post-communist economies between 1987-2003, we examine the nexus of relationships between inequality, fiscal capacity (defined as the ability to raise taxes efficiently) and the political regime. Investigating the impact of political reform we find that full political freedom is associated with lower levels of income inequality. Under more oligarchic (authoritarian) regimes, the level of inequality is conditioned by the state’s fiscal capacity. Specifically, oligarchic regimes with more developed fiscal systems are able to defend the prevailing vested interests at a lower cost in terms of social injustice. This empirical finding is consistent with the model developed by Acemoglu (2006). We also find that transition countries undertaking early macroeconomic stabilisation now enjoy lower levels of inequality; we confirm that education fosters equality and the suggestion of Commander et al (1999) that larger countries are prone to higher levels of inequality.
Original languageUndefined/Unknown
Place of PublicationMichigan (US)
PublisherWilliam Davidson Institute at the University of Michigan
Number of pages41
Publication statusPublished - Jul 2006

Publication series

NameWilliam Davidson Institute working papers series
PublisherPublisher name: William Davidson Institute at the University of Michigan
No.wp831

Keywords

  • income inequality
  • democracy
  • oligarchy
  • fiscal capacity
  • economic reform
  • transition

Cite this

Gerry, C. J., & Mickiewicz, T. (2006). Inequality, fiscal capacity and the political regime: lessons from the post-communist transition. (William Davidson Institute working papers series; No. wp831). Michigan (US): William Davidson Institute at the University of Michigan.
Gerry, Christopher J. ; Mickiewicz, Tomasz. / Inequality, fiscal capacity and the political regime: lessons from the post-communist transition. Michigan (US) : William Davidson Institute at the University of Michigan, 2006. (William Davidson Institute working papers series; wp831).
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Gerry, CJ & Mickiewicz, T 2006 'Inequality, fiscal capacity and the political regime: lessons from the post-communist transition' William Davidson Institute working papers series, no. wp831, William Davidson Institute at the University of Michigan, Michigan (US).

Inequality, fiscal capacity and the political regime: lessons from the post-communist transition. / Gerry, Christopher J.; Mickiewicz, Tomasz.

Michigan (US) : William Davidson Institute at the University of Michigan, 2006. (William Davidson Institute working papers series; No. wp831).

Research output: Working paper

TY - UNPB

T1 - Inequality, fiscal capacity and the political regime: lessons from the post-communist transition

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AB - Using panel data for twenty-seven post-communist economies between 1987-2003, we examine the nexus of relationships between inequality, fiscal capacity (defined as the ability to raise taxes efficiently) and the political regime. Investigating the impact of political reform we find that full political freedom is associated with lower levels of income inequality. Under more oligarchic (authoritarian) regimes, the level of inequality is conditioned by the state’s fiscal capacity. Specifically, oligarchic regimes with more developed fiscal systems are able to defend the prevailing vested interests at a lower cost in terms of social injustice. This empirical finding is consistent with the model developed by Acemoglu (2006). We also find that transition countries undertaking early macroeconomic stabilisation now enjoy lower levels of inequality; we confirm that education fosters equality and the suggestion of Commander et al (1999) that larger countries are prone to higher levels of inequality.

KW - income inequality

KW - democracy

KW - oligarchy

KW - fiscal capacity

KW - economic reform

KW - transition

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Gerry CJ, Mickiewicz T. Inequality, fiscal capacity and the political regime: lessons from the post-communist transition. Michigan (US): William Davidson Institute at the University of Michigan. 2006 Jul. (William Davidson Institute working papers series; wp831).