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Institutions and Economic Inequality


I ask what clues do historical and contemporary data provide for theory building and empirical work to enhance our understanding of the relationship between institutions and inequality. The survey begins with a brief overview of the role of institutions in economic reasoning about inequality and how this has evolved over the past two and a half centuries. A comprehensive model of dynamics of the distribution of income follows, designed to illuminate the possible effects of institutions on the proximate determinants of inequality, including wealth shocks, intergenerational wealth transmission, redistribution by states or other collective bodies, and technology. The remainder of the essay surveys work concerning:

  • complementarities between informal and formal institutions and how they might account for the persistence of development-retarding cultural-institutional environments;
  • institution shocks such as the abolition of slavery in the U.S. and their permanent or transient effects on economic disparities; and
  • political power and public policy as determinants of inequality in living standards

A brief section on possible research avenues concludes the survey.

Author: Sam Bowles

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