Abstract
AbstractDoes inequality affect outcomes? To answer, we use the microcosm of Olympic competitions by asking whether a country's level of inequality diminishes its performance. If it does, is it conditional on institutional factors? We argue that the ability of economically free societies to win medals will not be affected by inequality. In these societies, institutions generate incentives to invest in the talents of individuals at the bottom of the income distribution (potential athletes otherwise constrained in the ability to expend resources on training). These effects mitigate those of inequality. The incentives that promote investments in skills across the income distribution are weaker in unfree societies and they cannot mitigate the effects of inequality. Using the Olympics of 2016 in combination with the Economic Freedom data, we find that inequality only matters in determining medal numbers for unfree countries. We link these results to inequality and its effects on economic outcomes.
Highlights
The study of economic inequality has soared in recent years thanks to numerous studies dedicated to the proper measurement of inequality (Atkinson et al, 2011; Kopczuk et al, 2010; Piketty and Saez, 2003; Piketty et al, 2017)
11The medals won in the previous Olympics allow us to capture this effect as the resources available for a country to compete in the Olympics did not change dramatically between 2012 and 2016
A panel approach with country-fixed effects would have likely solved this problem. This is impossible because of the nature of the economic freedom data and the need for us to average economic freedom over a long-period prior to the Olympic Games in order to reflect the decision to invest in training
Summary
The study of economic inequality has soared in recent years thanks to numerous studies dedicated to the proper measurement of inequality (Atkinson et al, 2011; Kopczuk et al, 2010; Piketty and Saez, 2003; Piketty et al, 2017). Some studies found that inequality deters growth (Alesina and Perotti, 1996; Atems and Jones, 2015; Halter et al, 2014) whereas others have found no significant effects (Ferreira et al, 2018) or even positive effects (Forbes, 2000). This range of results implies that something else is in play. Inequality affects outcomes conditional on the quality of institutions within a country
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