European Institutional Integration and Income Inequality

Abstract

Though much attention has been paid to the distributional effects of globalization, similar consequences have been largely neglected in the case of regional integration. This paper empirically examines the impact of regional integration on income inequality within 29 European countries over the 1960-2011 time period. The novel metric for European institutional integration allows for observing the evolution of inequality with respect to the EU’s institutional transition from a free trade bloc to a centralized, federal-like entity with market-preserving characteristics. The evidence from unbalanced panel fixed effects regressions suggest that regional integration is quadratically associated with the evolution of income inequality within EU-affiliated countries: while the initial stages of economic integration exacerbated inequality, the effect reverses at the later stages during the buildup of supranational institutions and programs promoting inter-regional convergence and equalization.