Is income inequality linked to economic freedom? Empirical evidence from oecd countries

Abstract

Abstract: In this paper, we study the relationship between income inequality and economic freedom. We examine OECD countries using a new database of UNU/WIDER World Income Inequality Database Version 3.4 and Fraser Institute’s Economic Freedom of the World index to measure economic freedom. Based on panel data fixed effect estimation after checking for per capita income, government education expenditure, demographics, employment in industry and services sector and political variables, we find that the higher economic freedom is associated with higher income inequality in OECD countries, in other words in developed countries. This might be explained because of less redistribution and a regressive tax system. © Peter Lang GmbH.