The implications of institutional specificities on the income inequalities drivers in European Union

TL;DR

This study investigates how institutional differences in EU countries influence the impact of income inequality drivers on the Gini coefficient, revealing limited effectiveness of inequality mitigation strategies in countries with extractive institutions.

Contribution

It introduces a novel approach by separately assessing income inequality drivers based on institutional types using fixed effects models and EGLS estimation.

Findings

Impact of inequality drivers varies by institutional type

Limited effectiveness of inequality strategies in extractive institutions

Institutional context significantly influences income disparity dynamics

Abstract

This paper aims to review the different impacts of income inequality drivers on the Gini coefficient, depending on institutional specificities. In this context, we divided the European Union member states in two clusters (the cluster of member states with inclusive institutions / extractive institutions) using the institutional pillar as a clustering criterion. In both cases, we assesed the impact of income inequality drivers on Gini coefficient by using a fixed effects model in order to examine the role and importance of the institutions in the dynamics of income disparities.The models were estimated by applying the Panel Estimated Generalized Least Squares (EGLS) method, this being weighted by Cross-section weights option. The separate assessment of the income inequality reactivity to the change in its determinants according to the institutional criterion represents a new approach in this field of research and the results show that the impact of moderating income inequality strategies is limitedin the case of member states with extractive institutions.