This paper argues for the importance of individuals' tolerance of inequality for economic growth. By using the political ideology of governments as a measure of revealed tolerance of inequality, the paper shows that controlling for ideology improves the accuracy with which the effects of inequality are measured. Results show that inequality reduces growth but more so in societies where people perceive it as being relatively unfair. Further results indicate that legal quality and social trust are likely transmission channels for the effects of inequality.
Inequality; Growth; Social Capital
Main Research Area:
Public Choice Society Annual Meeting, Baltimore, Maryland, US, 2004