Economic Globalization, Domestic Politics, and Income Inequality in the Developed Countries

Abstract

This article assesses the impact of economic globalization and domestic political factors on income inequality and state redistribution in the developed countries over the past two decades, using household-level data from the Luxembourg Income Study that are more detailed, accurate, and cross-nationally comparable than those used in previous empirical work. It examines three major modes of international integration—trade, direct foreign investment, and international financial flows—as well as four domestic political variables—the partisan balance of national cabinets, electoral turnout, union density, and the centralization of wage-setting institutions. The study finds only scattered relationships between global integration and income distribution or redistribution but reasonably strong positive relationships between several domestic political variables and an egalitarian distribution of income and/or extensive state redistribution. These findings are consistent with a growing number of studies that emphasize the resilience of domestic political factors in the face of economic globalization.