Effects of the rule of law and central bank independence on economic inequality and surplus value

Abstract

ABSTRACT In this study, panel data, which were obtained from 36 countries, are utilized to empirically explore the factors that affect economic inequality before redistribution through taxes and social security. Our estimations reveal that legal origin influences the resolution of the paradox in which economic inequality before redistribution is high, although redistribution is low. Simultaneously, the Gini coefficient before redistribution can be lowered by strengthening the rule of law in countries with English legal origin, which is not the case in countries with other legal origins. In countries with French legal origins, strengthening the rule of law will increase the redistribution function. Furthermore, the rule of law, as well as central bank independence, can reduce economic inequality. The rule of law exhibits a negative relationship with the rate of surplus value, and the rate of surplus value exhibits a negative association with central bank independence. Simultaneously, the rule of law and central bank independence synergistically reduce economic inequalities. Thus, a weak rule of law, coupled with the absence of central bank independence, will promote monetary easing policies, which favours politicians. Moreover, inappropriate monetary easing policies would increase the control of companies over workers and promote exploitation.