Too Many and Too Much? Special-Interest Groups and Inequality at the Turn of the Century

Abstract

An increasing number of scholars argue that income inequality is related to institutional and cultural factors, as well as economic ones. I rely on Mancur Olson (1965)’s theories on the effect of group activities on economic performance to explore the possible link between the number of special- interest groups (SIGs) and the level of income inequality in a country, including SIGs among the long-run determinants of income inequality. Thus, assuming incomplete group formation, the paper investigates whether the number of SIGs in a country is related with the value of income inequality as expressed by the Gini index. The analysis is carried on through panel fixed-effects regressions on a sample of observations on 48 countries in the period 1985-2005. The results identify a non-linear relationship between the number of SIGs and income inequality, suggesting that SIGs tend to lower inequality at lower levels of income, but increase it in high income countries.