Income Inequality, Institutions, and Freedom of the Press: Potential Mechanisms and Evidence

Abstract

In the last few decades, income distribution has deteriorated in a large part of the world. The inability to stop inequality has evolved into a major social crisis and has become one of the most urgent issues globally. Given the importance of the issue, identifying the root causes of inequality can be a guide for policy makers in solving the problem. Although there are a few studies linking institutional quality with income inequality in recent years, the question of whether freedom of the press affects income distribution remains unanswered. This study is the first attempt to address this question. With this motivation, the study researches the influences of institutional quality and freedom of the press on income inequality for the BRICS-T (Brazil, Russia, India, China, South Africa, and Turkey) countries for the period 1993–2016. Moreover, globalization, economic growth, and trade openness are included in the model to avoid the problem of omitted variable bias in explaining inequality. The study findings indicate that institutional quality and freedom of press, which are the main independent variables for the entire panel, reduce inequality. In addition, although trade openness is a factor that reduces inequality, globalization and economic growth are not statistically significant. Although the country-specific estimates show heterogeneity, they are quite promising in terms of inequality, institutional quality, and freedom of the press. In this framework, policy makers can reduce inequalities by designing policies that emphasize institutional quality and freedom of the press. With such a win-win opportunity, BRICS-T countries can achieve two important gains to reach developed country status.