Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
IDEAS home Printed from https://ideas.repec.org/p/udc/wpaper/wp531.html
   My bibliography  Save this paper

The Fiscal Origins of Comparative Inequality levels: An Empirical and Historical Investigation

Author

Listed:
  • Andres Irarrazaval

Abstract

What explains exceptional inequality across Latin America, Africa, and India? By exploiting analytical, historical, and empirical tools, this research revisits the literature on inequality and long-term development. The findings challenge the colonial origins thesis, showing that significant inequality in Latin America, Africa, and India is not rooted in the colonial period nor explained by allegedly persistent “extractive†economic institutions. Instead, the empirical strategy that builds on Acemoglu et al. (2001) instrument variable (IV) method, consistent with historical evidence, indicates that current inequality differences only materialised during the 20th century following divergent fiscal patterns. In Western countries, progressive fiscality led to tangibly lower inequality since the 1920s. Whereas in Latin America, Africa, and India, despite post-colonial convergence toward “inclusive†economic institutions, inequality persists through a regressive fiscal equilibrium. In these developing regions, limited democratic accountability has undermined the formation of the credible commitments necessary to raise substantial direct (i.e., progressive) taxes and the political pressure required to mobilize such resources towards redistribution.

Suggested Citation

  • Andres Irarrazaval, 2022. "The Fiscal Origins of Comparative Inequality levels: An Empirical and Historical Investigation," Working Papers wp531, University of Chile, Department of Economics.
    • Handle: RePEc:udc:wpaper:wp531
    as

    Download full text from publisher

    File URL: https://econ.uchile.cl/uploads/publicacion/83e3cca6015da7bb9c6cd5092af65c6600e6c22a.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.
    2. Leonardo Gasparini & Leopoldo Tornarolli, 2015. "A review of the OECD Income Distribution Database," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(4), pages 579-602, December.
    3. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    4. Daron Acemoglu & Davide Cantoni & Simon Johnson & James A. Robinson, 2011. "The Consequences of Radical Reform: The French Revolution," American Economic Review, American Economic Association, vol. 101(7), pages 3286-3307, December.
    5. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    6. Abad, Leticia Arroyo & van Zanden, Jan Luiten, 2016. "Growth under Extractive Institutions? Latin American Per Capita GDP in Colonial Times," The Journal of Economic History, Cambridge University Press, vol. 76(4), pages 1182-1215, December.
    7. Williamson, Jeffrey G., 1999. "Real wages, inequality and globalization in latin america before 1940," Revista de Historia Económica / Journal of Iberian and Latin American Economic History, Cambridge University Press, vol. 17(S1), pages 101-142, March.
    8. Branko Milanovic, 2018. "Towards an explanation of inequality in premodern societies: the role of colonies, urbanization, and high population density," Economic History Review, Economic History Society, vol. 71(4), pages 1029-1047, November.
    9. Andrew Gelman & Guido Imbens, 2013. "Why ask Why? Forward Causal Inference and Reverse Causal Questions," NBER Working Papers 19614, National Bureau of Economic Research, Inc.
    10. Timothy Besley, 2020. "State Capacity, Reciprocity, and the Social Contract," Econometrica, Econometric Society, vol. 88(4), pages 1307-1335, July.
    11. Easterly, William, 2007. "Inequality does cause underdevelopment: Insights from a new instrument," Journal of Development Economics, Elsevier, vol. 84(2), pages 755-776, November.
    12. Branko Milanovic & Peter H. Lindert & Jeffrey G. Williamson, 2011. "Pre‐Industrial Inequality," Economic Journal, Royal Economic Society, vol. 121(551), pages 255-272, March.
    13. Kosack, Stephen, 2012. "The Education of Nations: How the Political Organization of the Poor, Not Democracy, Led Governments to Invest in Mass Education," OUP Catalogue, Oxford University Press, number 9780199841677.
    14. David Y. Albouy, 2012. "The Colonial Origins of Comparative Development: An Empirical Investigation: Comment," American Economic Review, American Economic Association, vol. 102(6), pages 3059-3076, October.
    15. Grafe, Regina & Irigoin, Maria Alejandra, 2006. "The Spanish Empire and its legacy: fiscal redistribution and political conflict in colonial and post-colonial Spanish America," Journal of Global History, Cambridge University Press, vol. 1(2), pages 241-267, July.
    16. Rhys Jenkins, 1991. "The Political Economy of Industrialization: A Comparison of Latin American and East Asian Newly Industrializing Countries," Development and Change, International Institute of Social Studies, vol. 22(2), pages 197-231, April.
    17. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    18. Irigoin, Alejandra, 2016. "Representation Without Taxation, Taxation Without Consent: The Legacy Of Spanish Colonialism In America," Revista de Historia Económica / Journal of Iberian and Latin American Economic History, Cambridge University Press, vol. 34(2), pages 169-208, September.
    19. Abhijit Banerjee & Lakshmi Iyer, 2005. "History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India," American Economic Review, American Economic Association, vol. 95(4), pages 1190-1213, September.
    20. Bielschowsky, Ricardo, 2008. "Sixty years of ECLAC: structuralism and neo-structuralism," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    21. Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1199-1226, October.
    22. Lustig Nora, 2016. "Inequality and Fiscal Redistribution in Middle Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa," Journal of Globalization and Development, De Gruyter, vol. 7(1), pages 17-60, June.
    23. Peter H. Lindert & Jeffrey G. Williamson, 2016. "Unequal Gains: American Growth and Inequality since 1700," Economics Books, Princeton University Press, edition 1, number 10670.
    24. Banerjee, Abhijit & Somanathan, Rohini, 2007. "The political economy of public goods: Some evidence from India," Journal of Development Economics, Elsevier, vol. 82(2), pages 287-314, March.
    25. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, September.
    26. Timothy Besley, 2020. "Reply to: Comments on “State Capacity, Reciprocity, and the Social Contract”," Econometrica, Econometric Society, vol. 88(4), pages 1359-1362, July.
    27. Bertola, Luis & Ocampo, Jose Antonio, 2012. "The Economic Development of Latin America since Independence," OUP Catalogue, Oxford University Press, number 9780199662142.
    28. Cabrera, Maynor & Lustig, Nora & Morán, Hilcías E., 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala," World Development, Elsevier, vol. 76(C), pages 263-279.
    29. Abhijit V. Banerjee & Esther Duflo, 2014. "Under the Thumb of History? Political Institutions and the Scope for Action," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 951-971, August.
    30. David Roodman & James G. MacKinnon & Morten Ørregaard Nielsen & Matthew D. Webb, 2019. "Fast and wild: Bootstrap inference in Stata using boottest," Stata Journal, StataCorp LP, vol. 19(1), pages 4-60, March.
    31. Martinez-Bravo, Monica & Ferraz, Claudio & Finan, Frederico, 2020. "Political Power, Elite Control, and Long-Run Development: Evidence from Brazil," CEPR Discussion Papers 14912, C.E.P.R. Discussion Papers.
    32. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    33. Daron Acemoglu & Simon Johnson & James Robinson, 2005. "The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth," American Economic Review, American Economic Association, vol. 95(3), pages 546-579, June.
    34. Dincecco, Mark, 2015. "The Rise of Effective States in Europe," The Journal of Economic History, Cambridge University Press, vol. 75(3), pages 901-918, September.
    35. Aidt, Toke S. & Jensen, Peter S., 2009. "The taxman tools up: An event history study of the introduction of the personal income tax," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 160-175, February.
    36. Pablo Astorga & Ame R. Berges & Valpy Fitzgerald, 2005. "The standard of living in Latin America during the twentieth century," Economic History Review, Economic History Society, vol. 58(4), pages 765-796, November.
    37. Paglayan, Agustina S., 2021. "The Non-Democratic Roots of Mass Education: Evidence from 200 Years," American Political Science Review, Cambridge University Press, vol. 115(1), pages 179-198, February.
    38. Daron Acemoglu & Francisco A. Gallego & James A. Robinson, 2014. "Institutions, Human Capital, and Development ," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 875-912, August.
    39. Stanley L. Engerman & Kenneth L. Sokoloff, 1994. "Factor Endowments: Institutions, and Differential Paths of Growth Among New World Economies: A View from Economic Historians of the United States," NBER Historical Working Papers 0066, National Bureau of Economic Research, Inc.
    40. David De Ferranti & Guillermo E. Perry & Francisco H.G. Ferreira & Michael Walton, 2004. "Inequality in Latin America : Breaking with History?," World Bank Publications - Books, The World Bank Group, number 15009.
    41. Lopez , J. Humberto & Perry, Guillermo, 2008. "Inequality in Latin America : determinants and consequences," Policy Research Working Paper Series 4504, The World Bank.
    42. Baten, Joerg & Pelger, Ines & Twrdek, Linda, 2009. "The anthropometric history of Argentina, Brazil and Peru during the 19th and early 20th century," Economics & Human Biology, Elsevier, vol. 7(3), pages 319-333, December.
    43. Odusola, Ayodele, 2017. "Fiscal Policy, Redistribution and Inequality in Africa," UNDP Africa Reports 267032, United Nations Development Programme (UNDP).
    44. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    45. Gareth Austin, 2008. "The 'reversal of fortune' thesis and the compression of history: Perspectives from African and comparative economic history," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(8), pages 996-1027.
    46. Gardner, Leigh A., 2012. "Taxing Colonial Africa: The Political Economy of British Imperialism," OUP Catalogue, Oxford University Press, number 9780199661527.
    47. John W. McArthur & Jeffrey D. Sachs, 2001. "Institutions and Geography: Comment on Acemoglu, Johnson and Robinson (2000)," NBER Working Papers 8114, National Bureau of Economic Research, Inc.
    48. James A. Robinson, 2002. "States and Power in Africa by Jeffrey I. Herbst: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 510-519, June.
    49. Hanni, Michael & Martner Fanta, Ricardo & Podestá, Andrea, 2015. "The redistributive potential of taxation in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    50. Maynor Cabrera, Nora Lustig, and Hilcías E. Morán, 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala - Working Paper 397," Working Papers 397, Center for Global Development.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Irarrázaval, Andrés, 2020. "The fiscal origins of comparative inequality levels: an empirical and historical investigation," LSE Research Online Documents on Economics 107491, London School of Economics and Political Science, LSE Library.
    2. Irarrázaval, Andrés, 2020. "The fiscal origins of comparative inequality levels: an empirical and historical investigation," Economic History Working Papers 107491, London School of Economics and Political Science, Department of Economic History.
    3. Andres Irarrazaval, 2023. "The Pillars of Shared Prosperity: Insights From Elite versus State Extraction And From a New Instrument," Working Papers wp549, University of Chile, Department of Economics.
    4. Rok Spruk & Mitja Kovac, 2020. "Persistent Effects of Colonial Institutions on Long‐Run Development: Local Evidence from Regression Discontinuity Design in Argentina," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(4), pages 820-861, December.
    5. Braunfels, Elias, 2016. "Further Unbundling Institutions," Discussion Paper Series in Economics 13/2016, Norwegian School of Economics, Department of Economics.
    6. Stelios Michalopoulos & Elias Papaioannou, 2020. "Historical Legacies and African Development," Journal of Economic Literature, American Economic Association, vol. 58(1), pages 53-128, March.
    7. Casey, Gregory & Klemp, Marc, 2016. "Instrumental Variables in the Long Run," MPRA Paper 68696, University Library of Munich, Germany.
    8. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    9. Broms, Rasmus, 2017. "Colonial Revenue Extraction and Modern Day Government Quality in the British Empire," World Development, Elsevier, vol. 90(C), pages 269-280.
    10. Jinfeng Luo & Yi Wen, 2015. "Institutions Do Not Rule: Reassessing the Driving Forces of Economic Development," Working Papers 2015-1, Federal Reserve Bank of St. Louis.
    11. Nunn, Nathan, 2014. "Historical Development," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 347-402, Elsevier.
    12. Antonio Savoia & Kunal Sen, 2015. "Measurement, Evolution, Determinants, And Consequences Of State Capacity: A Review Of Recent Research," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 441-458, July.
    13. Nobuhiro Mizuno & Katsuyuki Naito & Ryosuke Okazawa, 2017. "Inequality, extractive institutions, and growth in nondemocratic regimes," Public Choice, Springer, vol. 170(1), pages 115-142, January.
    14. James Fenske, 2013. "Does Land Abundance Explain African Institutions?," Economic Journal, Royal Economic Society, vol. 123(12), pages 1363-1390, December.
    15. Casey, Gregory & Klemp, Marc, 2021. "Historical instruments and contemporary endogenous regressors," Journal of Development Economics, Elsevier, vol. 149(C).
    16. Mark Dincecco & Mauricio Prado, 2012. "Warfare, fiscal capacity, and performance," Journal of Economic Growth, Springer, vol. 17(3), pages 171-203, September.
    17. Linda Glawe & Helmut Wagner, 2019. "The deep determinants of economic development in China—a provincial perspective," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 24(4), pages 484-514, October.
    18. Stimpfle, Alexander & Stadelmann, David, 2015. "The Impact of Fundamental Development Factors on Different Income Groups: International Evidence," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113128, Verein für Socialpolitik / German Economic Association.
    19. Esteban Muñoz-Sobrado & Amedeo Piolatto & Antoine Zerbini & Federica Braccioli, 2024. "The Taxing Challenges of the State: Unveiling the Role of Fiscal & Administrative Capacity in Development," Working Papers 1432, Barcelona School of Economics.
    20. Bennett, Daniel L. & Faria, Hugo J. & Gwartney, James D. & Morales, Daniel R., 2017. "Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective," World Development, Elsevier, vol. 96(C), pages 503-519.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:udc:wpaper:wp531. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mohit Karnani (email available below). General contact details of provider: https://edirc.repec.org/data/deuclcl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.