Political Institutions, Integration, and Within-Country Inequality - An Empirical Study

Abstract: Within-country inequality varies greatly between countries. Despite much research about the determinants of this inequality there is little consensus on what the underlying factors are. This thesis looks into the connection between political institutions, integration and inequality. Both institutions and integration has previously been put forward as important determinants of within-country inequality but they have seldom been investigated together. This thesis improves on previous works by using a more comparable set of Gini coefficients and by using interaction effects between integration and institutions. The results give robust support for the hypothesis that the quality of political institutions is negatively correlated to inequality. This negative relationship seems to stem from democracies providing more public goods than autocracies do, and not from differences in direct redistribution. The hypothesis that trade is positively related to inequality is not supported by the data. Instead, the results seem to suggest the opposite relationship. Lastly, this thesis finds that the answer to the hypothesis that institutions can affect how integration affects inequality is dependent on what sample and specification is used.