Globalisation, inequality and redistribution: Theory and evidence

Abstract

This paper constructs a simple theoretical model to study the implications of globalisation for inequality and redistribution. It shows that when globalisation increases inequality, a policymaker interested in maximising the sum of welfares of all agents increases redistribution. Empirically, the paper examines the effects of globalisation on inequality and redistribution in a panel data set of 140 countries for the period from 1970 to 2012. It finds that both inequality and redistribution have been increasing with globalisation. The results are robust to the inclusion of many different controls and the exclusion of outliers.