The Effects of Good Governance on Income Inequality with an Emphasis on Political Instability

Document Type : Research Paper

Authors

1 M.Sc. Department of Economics, Mazandaran University, Babolsar, Iran

2 Professor, Department of Economics, Mazandaran University, Babolsar, Iran

10.22051/ieda.2024.46408.1406

Abstract

In recent decades, increasing income inequality, economic inefficiency, and lack of economic justice, especially in developing countries, have played a significant role for governments in determining the appropriate distribution of incomes. Since the mid-1990s, along with the expansion of new institutionalism literature, good governance has been proposed as one of the essential components influencing the fair distribution of opportunities and incomes and the development of countries. In this study, focusing on the Middle East and North African countries (MENA region), we investigated the effect of good governance components on income inequality from 2008 to 2021 through the use of the Systemic Generalized Moments Method. The results of the estimation showed that political instability - one of the most important components of governance - increases income inequality in MENA countries. On the other hand, expanding civil liberties and increasing economic transparency can lead to the reduction of income inequality in these countries. The result of the estimation also shows that an increase in per capita income provides opportunities for reducing inequality, while an increase in the size of the government may be accompanied by an increase in income inequality. This is because in less developed countries - MENA countries included - the increase in government size is often done by increasing current expenses. Despite crowding out, an increase in unproductive government expenditures leads to decreasing productive investments in the private sector, a decrease in economic growth, and an increase in income inequality.

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References

 
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