Thread by @MarcoRanaldi_

*Capitalist Systems and Income Inequality*, new WP with @BrankoMilan is out!

Does classical capitalism, where rich individuals earn only from ownership (capital) and poor only from work (labor), display higher income inequality than liberal capitalism?

Thread below! (1/6)

https://twitter.com/BrankoMilan/status/1317135215089901575

Recall that:

Classical capitalism <—> high income composition inequality (ICI)

Liberal capitalism <—> low income composition inequality

To measure the level of a country's ICI, we use the IFC index that I developed in this paper —> osf.io/preprints/soca…

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Using @lisdata from 47 countries we report three main empirical messages & one methodological innovation:

First empirical finding:

At the quasi-global scale, classical capitalism is associated with higher income inequality than liberal capitalism.

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Second empirical finding:

3 major clusters emerge: LACs (green) combine high inequality & high ICI; advanced economies (blue) show moderate levels of both inequality dimensions; Nordic countries (red) are exceptional insofar as they combine low inequality & high ICI.

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Third empirical finding:

No one country in our sample combines high inequality and low ICI. This provides an argument for better redistributing individuals' factor shares (i.e. capital and labor) across the income distribution.

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Methodological innovation:

We introduce a novel formal expression for the Gini coefficient, which can be interpreted as a Cobb-Douglas inequality function. Below its functional form:

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