Research spanning over 5,000 years sheds light on income inequality today

King Menes United Egypt around 5,000 years ago, making it one of the world’s first central governments.

Millennia later Namibia, on the southwest coast of Africa, was under German and then South African rule until 1990, when its independent government was formed.

The history of the state of Egypt is old and that of Namibia is new, but the two countries have one thing in common: relatively high levels of income inequality today.

Central governments that are very old or new tend to have higher inequalities than those in the middle – a “just rightGoldilocks zone of least inequality for countries whose governments are sometimes located between Egypt and Namibia.

This is the essential conclusion of a recent article by Economic modeling, “State experience and income inequality: a historical perspective”, Based on data spanning over 5,000 years.

“A key argument is that newly established and older states tend to suffer from the persistence of poor governance, which makes it difficult to establish an egalitarian society,” author Trung Vu, a PhD student in economics at the University of Otago in New Zealand, explained via email.

Countries in the Goldilocks zone, with intermediate state experience and relatively low levels of inequality, include Austria, Belgium, Germany, Japan and Switzerland.

Vu’s U: State and inequality

Vu uses historical data from 3500 BC to 2000 to determine when 128 countries developed a state.

State status occurs when a central government is put in place, which has the power to enforce laws and regulations, collect taxes, and perform other functions on behalf of a large number of people.

Some modern countries have had many types of central governments over the years – monarchies, dictatorships, representative democracies.

But statehood is not about what kind of government a territory has or has had. It is simply the existence of centralized governance.

Seen then takes an average of Gini coefficients, a widely used measure of income distribution, for these 128 countries from 1960 to 2015. Italian statistician Corrado Gini developed the measure in 1912. It is often produced on a scale of 0 to 100. A score closer to 0 indicates less inequality while a score closer to 100 indicates more inequality.

For Vu, a U-shaped relationship between the historic state and income inequality emerges.

Central governments that are very old or new tend to have higher inequalities than those in the middle. There are outliers. Peru, Guatemala and Mexico have relatively high inequalities, but are in the middle zone, Goldilocks. Slovakia and Finland have relatively little experience with statehood and relatively low inequalities, according to Vu’s analysis.

The United States also has a relatively new central government. Although income inequality in the United States has increased in recent decades, it is still lower than in many other countries.

Still, the general trend is high-low-high, like a U.

“Understanding whether history casts a long shadow over current development results is the first step towards managing the long-term legacy of history,” Vu wrote via email.

Institutions and income distribution

Separate researchers developed the historical data on state-seen uses of Seen, publishing their findings in a Paper 2017 in the Journal of Economic Growth. These researchers used a variety of secondary sources, including the Encyclopedia Britannica, academic journal articles, and books, to determine when places established state status.

Newer and older states tend to have higher income inequalities because they lack institutional quality and stability, according to Vu.

Long-standing governments can suffer from institutional stagnation, he explained. Powerful bureaucrats emerge who manipulate established systems to their advantage, increasing inequalities.

New governments, on the other hand, are susceptible to regime change, external attacks and internal corruption from officials who take advantage of laws that are not well established. Steady economic growth and a fair distribution of income are difficult in a politically unstable country.

Countries in the Goldilocks tend to be more stable and less corrupt: “A unified society reduces conflict and political instability, thereby improving income distribution,” Vu writes in his article.

Go up Kuznets?

Russian-American economist Simon Kuznets, write in The American Economic Review in March 1955, proposed a theory of a frown or inverted U-shaped relationship between economic development and income inequality.

The theory is that income inequality in a country starts out low, increases as economic development continues, and then recovers as the country develops a mature economy.

Today, the inverted U is known as the Kuznets curve.

Kuznets wrote in his article that his theory was based on “maybe 5% empirical information and 95% speculation, some of which might be tainted with wishful thinking.” (He continued to to win the Nobel Prize in Economics in 1971 for his work on the growth of national economies.)

The Kuznets curve is “a story of adjustment over time, although many empirical studies on [it] are based on cross-sectional data – an overview of the variation between countries at any given time, ” Dorian Owen, Explains the academic advisor of Vu by e-mail. “The increase in inequality in developed economies after 1960 and the experience of growth in East Asia – with both rising levels of per capita income and a reduction in inequality – are often cited as counterparts. examples to the fit dynamics assumed by the Kuznets curve, so the relevance of the Kuznets curve is disputed.

Seen noted via email that his findings do not necessarily contradict recent research supporting the Kuznets curve, adding that “many factors shape the evolution of income inequality”.

In addition, Vu’s research focuses specifically on the state as a driver of inequality. It has weighed more heavily in the analysis of the state’s experience over the past 50 years than remote periods, as recent events are more likely than ancient history to affect economies today.

Vu also monitored geographic features as well as recent income levels, trade openness, development of government and financial institutions and human capital.

These indicators are associated with the economic development of a country. But Vu examines the relationship between the state and inequality, not economic development and inequality.

Although Vu noted that there is no way to exclude all the non-state factors that affect inequality today, there is no other variable he considers that “completely absorbs the inequalities. effects of state history on income inequality.

For government officials and others working to reduce disparities, “reducing income inequality requires treating the disease, not just its symptoms,” Vu writes in his article.

“Policymakers need to recognize the historical legacy that has a lingering influence on the environment in which current policies are framed, including, in some countries, potential resistance to reducing inequalities,” Owen explained.

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