IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
From a procedural perspective, an economic process is fair or unfair depending on the rules of the game and the shape of the income distribution is irrelevant. As a component of the Rule of Law, equality before the law is a necessary condition for fairness. Recognizing a higher level of equality before the law as a normative criterion, I examine to which extent the observed income and wealth inequality in a sample of 87 countries can be traced back to inequality before the law and be therefore qualified as unfair from a procedural justice perspective. Using data from the World Justice Project and the Standardized World Income Inequality Database, I find that the relationship between equality before the law and income inequality before redistribution is conditional on the level of development. Additionally, an increase in equality before the law is found to be related to less redistribution and more strongly so in poorer countries. The model largely predicts lower levels of income inequality after redistribution in a scenario of complete fairness compared to the de facto level of income inequality.
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