The impact of governance on inequality : An empirical study

Sammanfattning: This paper examines the effect of governance on inequality, specifically if improvements in the World Bank’s Worldwide Governance Indicators affect inequality as measured by two Gini coefficients: Market Gini, before taxes and redistribution, and Net Gini, after taxes and redistribution. The data for the Gini measurements was taken from the Standardized World Income Inequality Database (SWIID) and the data for the Worldwide Governance Indicators was taken from the World Bank. Data for fifteen (15) years, from the start of the Worldwide Governance Indicators until 2013, was combined with data from SWIID for the same years. In all, data from one hundred fifty-six (156) countries with a full set of six (6) indicators for the years that had at least one corresponding Gini measurements were used in this study: in total one thousand seven hundred and forty-seven (1747) observations. In a pooled OLS regression, controlling for growth with the variable GDP per Capita expressed as a per cent (%) change on an annual basis, the individual indicators gave the following results, where a positive sign indicates increased inequality and vice versa: Control of Corruption and Regulatory Quality showed a positive sign for both Gini measurements. Rule of Law, Government Effectiveness, Political Stability and the Absence of Violence/Terrorism, gave a negative sign for both Gini measurements. Voice and Accountability showed a positive sign for Market Gini and a negative sign for Net Gini. The fact that an improvement in Control of Corruption increased inequality both before and after taxes and redistribution was unexpected and should be further researched.