Journal of Development Economics 87 (2008) 300 – 308

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The growth–inequality association: Government ideology matters

Christian Bjørnskov
Department of Economics, Aarhus School of Business, University of Aarhus, Prismet, Silkeborgvej 2, DK-8000 Aarhus C, Denmark
Received 29 August 2006; received in revised form 19 April 2007; accepted 29 April 2007

Abstract

This note suggests that the association between income inequality and economic growth rates might arguably depend on the
political ideology of incumbent governments. Estimates indicate that under leftwing governments, inequality is negatively
associated with growth while the association is positive under rightwing governments. This may provide a qualification to recent
studies of inequality.
© 2007 Elsevier B.V. All rights reserved.

JEL Classification: D31; O40

Keywords: Income inequality; Ideology; Growth

1. Introduction conflicting findings: depending on the specific research

Economic growth theory has suggested a number of
objective channels leading from inequality to economic
growth and performance: incentive structures may suffer
from combating inequality (Kaldor, 1956; North, 1991;
Olson, 1996), human capital accumulation can be
hindered (Perotti, 1993; Barro, 2000), inequality may
cause political instability and distortions from increased
government activity (Persson and Tabellini, 1992, 1994;
Perotti, 1996), and the quality of the legal system can be
undermined by social polarization (Keefer and Knack,
2002).1 While the theoretical literature is rich in
transmission mechanisms to be explored in empirical
studies, these studies have yielded a mass of mutually
E-mail address: ChBj@asb.dk.
1
Aghion et al. (1999) go through virtually all arguments for a
negative association between inequality and growth, thereby providing
an excellent survey of the literature from the 1990s. Yet they dismiss
Forbes' (2000) positive findings as a pure effect of her estimation
strategy (GMM) and fail to discuss Barro's (2000) equally positive
results, both of which were available as working papers at the time.
0304-3878/$ - see front matter © 2007 Elsevier B.V. All rights reserved.
doi:10.1016/j.jdeveco.2007.04.002
design and sample, inequality is either bad for growth,
good for growth, or perhaps irrelevant. To understand
these seemingly incompatible findings, it may be worth
noting that differences in political ideology continue to
be reflected in individuals' beliefs about, for example,
income inequality and the resulting political and eco-
nomic outcomes (Scott et al., 2001; Michelbach et al.,
2003; Bjørnskov, 2005). However, the potential effects
of governments' political ideologies on the relation
between inequality and growth remain uncharted land.
The question explored in this note is to what extent
governments' political ideology affects the inequality–
growth association. The standard theoretical treatment
of politics in the inequality literature deals with median
voter effects of income inequality on government policy
(Persson and Tabellini, 1992; Perotti, 1996). While it is
a priori valid to take the view that income inequality
leads voters to demand more redistribution, either
through transfers and progressive taxation, public
goods provision or some third mechanism, the ideolog-
ical position of the incumbent government might play a
 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308
role in this mechanism. At least two reasons for
ideologically differential effects can be thought of:
1) the likelihood of introducing redistributive policies
may vary with partisan differences; and 2) even if the
median voter demands such redistribution, the way
that redistributive policies are designed and imple-
mented may differ substantially according to partisan
preferences.
As such, even if redistributive policies with similar
intentions are introduced to affect the existing income
distribution, their growth effects could potentially differ
across government ideologies. For example, casual
observations of differences across the US would suggest
that Democrat administrations probably favor redistri-
bution through direct transfers to the relatively poor
while Republican administrations, perhaps best exem-
plified by the Reagan governments, tend to favor tax
cuts and exemptions as a way to boost possibilities for
all citizens. As such, ideologically implemented redis-
tributive policies could have very different incentive
effects.
However, redistributive policies are not the only
candidates for how ideology could mediate the effects of
inequality. To the extent that inequality breeds social
unrest and thus lowers growth, an observable part of the
unrest in the form of strikes and riots may arguably
depend on how receptive the government is to such
problems. Given that leftwing governments historically
have closer ties to labor unions and other organizations
responsible for part of such unrest, the growth effects of
this type of inequality-induced problems may also differ
with government ideology. A third option could arise if
leftwing governments facing high inequality prioritize
redistribution over the protection of property rights, as
has recently been the case in certain Latin American
countries and most clearly in the Venezuela of Hugo
Chavez. Undermining property rights or prioritizing
other policies than institutional improvements would
also tend to lower growth in the medium run, creating an
association between inequality and growth depending
on political ideology. A number of other possible
narratives could be told, implying that the effects of
income inequality vary across different types of
governments. The overall possibility that the inequali-
ty–growth association is mediated through the political
ideology of the incumbent government is what is tested
in this note.
2. Data and estimation strategy
The potential implications for economic growth
outlined in the introduction are tested in the next
301
section. For this purpose, both economic data and a
measure of political ideology are needed. On the latter
point, I follow the general approach in Bjørnskov (2005)
by using national election results categorized in the
Beck et al. (2001) Database of Political Institutions,
which defines the three largest government parties in
178 countries at any time between 1975 and 2000
according to whether they have a leftwing, centrist or
rightwing political orientation. By coding leftwing
parties − 1, centrist parties 0, and rightwing parties 1,
and weighting single party ideologies with their share of
seats in parliament, a proxy of the self-professed relative
ideology of governments can be obtained. In order to
make the measure comparable across time, I average
these scores over five-year periods for which data are
available.2 The resulting index is distributed between
− 1 and 1, where countries that have had a fully leftwing
government throughout the period are assumed to have a
population in which the majority has leftwing sympa-
thies and ideology and which defines the policy set.
It must be stressed that measures of political ideology
only make sense where voters are free to vote for
whomever they choose and thus reveal their true
preferences. Likewise, the measure only reflects the
ideological content of government policies in the
absence of extra-parliamentary influences such as the
military or other de facto non-elected powers. Hence,
even though there is little reason to believe that specific
policies differ between democracies and non-democra-
cies (cf. Mulligan et al., 2004), the full sample used in
this paper only includes observations from countries that
have been democratic in any given five-year period
between 1975 and 2000, defined as having an average
score in a five-year period on the Gastil index of less
than three (Freedom House, 2005). Alternatively, I use a
smaller sample of countries that have been democratic
by this criterion in at least four of the five periods in
question. The stricter exclusion criterion is applied to
avoid a number of potential problems of newly-
democratic countries in which voters may not be
accustomed to the democratic process, where political
2
Averaged over longer periods of time, this measure is also likely to
roughly correspond to the political ideology of the median voter and
may therefore proxy for his or her tolerance of inequality. It should be
noted that data from the Comparative Manifestos Project may be an
alternative source of political ideology. However, these data to a larger
extent depend on the actual situation in countries as, for example, the
Democratic Party in the US seems to put more focus on labor unions
than e.g. Scandinavian socialist parties, the reason being that union
membership is high in Scandinavia. Such complications make the
simple ideology measure adopted here preferable as it is relatively
free of context.
302 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308
parties may not yet have formed clear ideological
positions, where voters initially may chose to elect the
opposite political side as a protest against former non-
democratic governments, and increases in the political
voice of relatively poor groups in society (cf. Lindert,
2004), all of which could give rise to spurious findings
pertaining to the ideology measure.
In the following, I estimate a set of standard Barro
regressions of growth across the five five-year periods
between 1975 and 2000, relying on generalized least
squares estimates with random effects while also
reporting the fixed effects estimates. With random
effects, most relevant country-specific characteristics
should be sorted out while allowing for stable levels of
inequality to have some long-run effects.3 In these
regressions, the ideology measure is added to a set of
standard control variables and a measure of income
inequality, as well as an interaction term to take into
account the potentially heterogeneous effect of inequal-
ity. As such, given the control of ideological reactions,
any ‘pure’ effects of income inequality, such as those
arising from capital market imperfections, should be
measured with greater accuracy when taking ideology
into account.
Inequality is measured by comparable Gini coeffi-
cients in any five-year period taken from the World
Income Inequality Database (UNU, 2005), which is
mainly based on the Deininger and Squire (1996)
dataset. Specifically, I use Gini coefficients based on
gross income, following Deininger and Squire's (1996)
approach of adding 6.6 to coefficients estimated using
data on expenditure instead of income.4 The control
3
In general, Hausmann tests favor the use of fixed effects
(Chi2 = 150.03 in the large sample and 52.89 in the smaller sample),
which I therefore report in a separate panel. However, neither the
estimate on political ideology nor that on the interaction term differ
significantly between the two methods. What instead appears to be
driving the Hausmann test difference is the convergence term, which
is strongly negative in the fixed effects estimates, while other control
variables remain the same. As such, I mainly report the random effects
estimates since they are likely to pick up more of the long-run effect
of inequality.
4
The use of gross income instead of net income or other measures
is chosen due to theoretical considerations. In particular, Atkinson and
Brandolini (2001, 789–790) note that “differences across countries,
and across time, are to be expected as a result of differences in
government fiscal policies and in tax incidence” which could give rise
to spurious findings as “a more progressive tax system may cause
behavioral reactions that widen the distribution of market income”.
Furthermore, in the context of voting behavior voters do not observe a
potential pre-policy income distribution, but only the distribution after
all policies have had their effect, which is necessarily what they act
politically on.
variables in all regressions include a number of standard
factors found in the growth literature. It consists of the
logarithm to GDP per capita to control for conditional
convergence, openness to trade (volume in percent of
GDP), the real investment price level, defined as the
investment price level as a ratio of the general price
level, population growth, ethnic diversity, government
consumption (percent of GDP), and dummies for the
postcommunist countries, Asia, Sub-Saharan Africa,
North Africa and the Middle East and Latin America, as
well as for the time periods. 5 All variables are
summarized in the Appendix; Table A1 gives descrip-
tive statistics and Table A2 reports the sources.
A potential reason to worry would be multicollinear-
ity if either a rightwing ideology leads to less effective
redistribution, or if some confounding variable – for
example cross-national differences in culture, social
norms or mental models – affects both. However, the
correlation between inequality and political ideology is
only .07–.09 in the two samples, indicating that even
though the association might be statistically significant,
it is hardly substantial in economic terms.6 Even though
multicollinearity may not be a problem here, I rescale
ideology and inequality by centering them on their
means and dividing by their standard deviations. As
such, all associations are evaluated around the sample
means and are therefore relevant to the typical country
although the findings may not apply in the tails of the
inequality distribution (cf. Brambor et al., 2006).
3. Results
As a first indication of the possible association
between income inequality and growth, the simple
correlation in the present sample is a meager − .02.
However, splitting the sample as in Fig. 1 reveals the
possible story to be told. In the figure, the observations
with governments to the left of the political middle are
5
In the present sample, the correlation between ethnic diversity and
inequality is .44. The inclusion of ethnic diversity may therefore
potentially be important, as income inequality could proxy for effects
pertaining to ethnically diverse countries, with the exception of fixed
effects estimates.
6
Regressing inequality on political ideology, the logarithm to initial
GDP and initial GDP squared, i.e. estimating a Kuznets curve, shows
that government ideology is not significantly associated with Gini
coefficients based on gross income. While the present sample of
democratic countries shows some support for the curve, the turning
point is rather low, indicating that inequality becomes negatively
associated with economic development at an average income of about
USD 4500, which is less than half of the average in the present
sample.
 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308 303

Fig. 1. Ideology, inequality and growth.

marked with a circle while the ideologically opposite
observations are marked with triangles. Drawing simple
regression lines through these two clusters of points
reveals that the association is negative for the former
group (the full line) and positive for the latter (the dotted
line). At a very first glance, government ideology thus
seems to mediate the growth-inequality association.
Turning to the empirical findings, Table 1 shows the
results of estimating the growth model with the upper
panel reporting the full results of employing random

Table 1
Main results
Sample 1 2 3 4
Gastil b= 3 Four periods
Log initial GDP − 1.5118⁎⁎⁎ (.5273) − 1.3166⁎⁎⁎ (.5048) −.8552⁎ (.4994) − .7417 (.4974)
Postcommunist − 4.0274⁎⁎⁎ (1.0334) − 4.0667⁎⁎⁎ (.9866)
Openness to trade .0175⁎⁎⁎ (.0065) .0172⁎⁎⁎ (.0062) .0109⁎⁎ (.0053) .0097⁎ (.0053)
Population growth − .1403⁎⁎ (.0570) − .1526⁎⁎⁎ (.0549) −.1172⁎⁎ (.0539 − .1257⁎⁎ (.0529)
Ethnic diversity − 2.4454 (1.5551) − 1.7923 (1.4713) .0096 (1.0468) .0366 (1.0569)
Investment price − .9129⁎⁎ (.4664) − .8718⁎ (.4489) −.4348 (.6685) − .2245 (.6517)
Government consumption − .0138 (.0321) − .0146 (.0309) −.0472 (.0316) − .0540⁎ (.0308)
Inequality .0659 (.3815) − .1146 (.3725) −.1537 (.4146) − .3989 (.4094)
Political ideology .4649⁎⁎ (.2361) .6896⁎⁎⁎ (.2382) .3146 (.2194) .5654⁎⁎ (.2243)
Ideology⁎inequality 1.0258⁎⁎⁎ (.2849) 1.0381⁎⁎⁎ (.2937)
Observations 228 228 170 170
Countries 73 73 38 38
R square within .267 .294 .179 .233
R square between .215 .299 .369 .433
Chi squared 65.00 81.18 51.13 65.83

Fixed effects estimates

Inequality .7340⁎ (.4303) .5595 (.4217) .7474 (.4616) .4583 (.4550)
Political ideology .3428 (.2352) .6658⁎⁎⁎ (.2511) .2261 (.2258) .5697⁎⁎ (.2439)
Ideology⁎ inequality .9893⁎⁎⁎(.3197) 1.0219⁎⁎⁎ (.3253)
R square within .475 .508 .324 .376
Note: Random effects GLS estimates in upper panel; fixed effects estimates in lower panel include full specification. ⁎⁎⁎ (⁎⁎) [⁎] denotes significance
at p b .01 ( p b .05) [ p b .10]. All regressions include dummies for Asia, Sub-Saharan Africa, North Africa and the Middle East and Latin America, and
period dummies.
304 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308

effects while the fixed effects estimates on the central Bjørnskov (2005) although the present study uses
variables are reported in the lower panel. Columns 1 and shorter time periods. What is more, the association
3 report the results of a standard specification while with political ideology increases with the level of
columns 2 and 4 add the interaction term. Columns 1 inequality or, stated alternatively, the growth-inequality
and 2 report the results estimated on the democratic association depends crucially on both the direction and
sample, which consists of 74 countries, and columns 3 strength of the ideology of the government. The results
and 4 report the results using the smaller sample of 38 in Table 1 thus provide support for the hypothesis
countries with a longer democratic history. brought forward in this note.
First, the results of the control variables are fairly The fixed effects estimates presented in the lower
standard. Postcommunist countries grow slower, as the panel of the table serve to corroborate these results.
observations from these countries are necessarily from While some of the control variables may change (not
the 90s in which they went through their transition to shown), the central coefficient estimates on ideology,
market economy; this is also the obvious reason why inequality, and the interaction term do not change
they are all excluded from the smaller sample. The significantly, only the ideological value around which
coefficient on the initial income level is always negative the effect of inequality turns positive. Whereas the
but only strongly significant in the full sample. Ethnic random effects estimates suggest that government
diversity also fails to be significant, although being ideology has to be slightly to moderately rightwing
close to significance in the full sample. Openness, on the (.25–.5), the alternative estimates in the lower panel
other hand, is significant throughout as is population show that ideology only has to pass a point of being
growth, which exerts a negative influence. Second, two
variables are more doubtful: the real investment price is
significant only in the larger sample and government
Table 2
consumption exerts a significant negative effect in only Robustness tests
one case in the smaller sample of countries with a
Political Inequality Ideology⁎ Observations/
democratic history. While the first lack of significance in
ideology inequality countries Chi
the smaller sample may be due to the substantially squared
smaller variation in countries with a long democratic
Without:
history, the latter probably reflects that the average Outliers .5472⁎⁎⁎ .3492 1.1521⁎⁎⁎ 206/69
income level is substantially larger in this sample, and (.1713) (.2743) (.2049) 138.34
that the adverse effects of government consumption Sub- .5557⁎⁎ .1051 .7459⁎⁎ 212/64
either only arise in relatively rich countries or that data Saharan (.2546) (.3781) (.3217) 72.87
Africa
are sufficiently comparable between these countries to
Latin .7925⁎⁎ −.3734 1.2249⁎⁎ 170/53
identify the effect (cf. Fölster and Henrekson, 2001; America (.3133) (.4109) (.3722) 99.31
Schaltegger and Torgler, 2006). GDP b 6000 .7323⁎⁎ .1185 .9897⁎⁎ 159/45
Continuing to the purpose of this note, the results in USD (.3286) (.4324) (.4095) 85.01
columns 1 and 3 reflect the difficulty of the literature in
Including:
documenting a robust association between growth and
Schooling .5559⁎⁎ .1503 .9339⁎⁎⁎ 217/66
income inequality. Both estimates are negative but are (.2340) (.3839) (.2904) 61.09
far from being significant. Political ideology, on the Economic .4906⁎⁎ .0259 .8344⁎⁎⁎ 226/71
other hand, is strongly significant in the larger sample in freedom (.2251) (.3454) (.2663) 120.02
columns 1 and 2 while failing to be significant in Investments .6605⁎⁎⁎ −.0268 .9975⁎⁎⁎ 228/73
(.2365) (.3714) (.2829) 87.73
column 3. However, this changes in columns 2 and 4
Transfers .6229⁎⁎⁎ .2865 1.1603⁎⁎⁎ 210/64
that allow for the effects of inequality to vary with the and (.2273) (.3582) (.2914) 72.35
political ideology of the incumbent government. subsidies
First, political ideology per se becomes highly All four .3736⁎ .3309 .9622⁎⁎⁎ 205/59
significant in both samples with almost the same variables (.2185) (.3513) (.2806) 105.65
coefficient, indicating that a half-point change in the Note: Random effects GLS estimates; all estimates include full
index – for example from a centrist to a moderately specification and use the larger sample (Gastil b= 3); ⁎⁎⁎ (⁎⁎) [⁎]
rightwing government – is associated with an improve- denotes significance at p b .01 (p b .05) [p b .10]. Outliers are defined as
observations with residuals larger than ÷1.5 standard deviations;
ment in the growth rate of approximately half a excluding all observations from Sub-Saharan Africa yields the smallest
percentage point, or about a fifth of a standard deviation. conditional association with inequality, excluding those from Latin
The estimate is therefore of about the same size as that in America yields the largest.
 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308
moderately leftwing (around − .5) for inequality to be
positively associated with economic growth. As such,
while the findings are substantially different from much
of the inequality literature, they still generate the
standard picture that the use of fixed effects techniques
is much more likely to show that inequality is beneficial
to growth. The qualitative results, on the other hand, do
not differ between the two sets of estimates.7
The findings in Table 1 clearly point towards a
differential association with inequality that depends on
the political ideology of the incumbent government,
although the estimates may seem unrealistically large.
However, this finding could in principle be entirely
spurious; Table 2 therefore provides a set of simple
robustness tests. In the upper panel, the table reports
tests for the exclusion of countries from different
regions of the world and for potential outliers that
could bias the results. The first row reports the results
of excluding the 22 observations with a residual in the
baseline specification (from Table 1, column 2) larger
than ± 1.5 standard deviations, which leaves the results
virtually unchanged. In the following rows, I report the
results of excluding all observations from single
regions; the table only shows the largest and smallest
estimates arising from this exercise. While excluding
Latin American countries from the sample yields a
slightly larger interaction term and a somewhat larger
coefficient on political ideology, the exclusion of
observations from Sub-Saharan Africa results in a
significantly reduced interaction term, although it
remains significant at p b .05. Excluding all low-
income countries (defined as those with a GDP per
capita less than 6000 USD) also leaves the findings
untouched, even though one could have expected either
stronger political polarization in relatively poor
countries or specific problems of human capital and
capital market imperfections to affect the results (cf.
Barro, 2000).
The following rows of Table 2 report the result of
including four additional variables often found in
growth regressions and theoretically connected to
7
One might well speculate on the difference between the random
and fixed effects estimates. For example, even if inequality is always
insignificant, the positive sign in the latter estimates that only pick up
short-to-medium run effects tend in the direction of the positive
findings in Forbes (2000) while the negative sign in the former tend in
the direction of the conclusions from earlier cross-sectional studies. It
may therefore seem an a priori valid assertion that inequality can
have negative effects in the long run, for example through its
influence on median-voter preferences or social trust (cf. Alesina and
Angeletos, 2005; Zak and Knack, 2001).
305
inequality — schooling, economic freedom, invest-
ments and a measure of transfers and subsidies as
percent of GDP to control for the potential influence of
direct redistributive policies. First, none of the
additional variables yield the main findings insignifi-
cant even if entered jointly. Even the inclusion of the
measure of transfers and subsidies, which in itself (not
shown) is far from significant, does not affect the
central estimates, although it would a priori be treated
as a direct measure of the extent of redistributive
policies. As a very simple first robustness test, the
inclusion of these four variables therefore yields the
conclusion that inequality is differentially associated to
growth unaltered.8
As a last option, there is a theoretical possibility that
rightwing governments cause an increase in the
skewness of the income distribution. While political
ideology does not seem likely to lead to inequality in the
present sample,9 the results in Table 3 nevertheless
control for the possible non-linearities explored in
Banerjee and Duflo (2003). The random effects
estimates indeed show some support for a non-linear
effect, indicating that particularly high levels of
inequality are associated with slower growth per se.
The fixed effects estimates that take out any long-run
effects, on the other hand, do not support this finding.
Either way, allowing for non-linearities does not change
the findings in previous tables as political ideology and
its interaction with inequality remains significant, linear
and of the same size throughout. Overall, the additional
tests in Tables 2 and 3 therefore leave the main findings
unaltered. As they, on the basis of the preliminary
evidence presented in this note, seem robust and causal,
8
Another robustness issue is that of causality, as it could be the
case that faster economic growth makes voters more likely to elect
rightwing governments and more tolerant of inequality. Ideally, an
instrumental variables approach would be used, but it proved
virtually impossible to find proper instruments for government
ideology. Yet, judging from the literature on partisan politics dating
back to Nordhaus (1975) and Hibbs (1977), the problem seems
unlikely. Both find that leftwing governments historically have opted
for a high-inflation/low-unemployment/fiscally expansive policy
configuration while rightwing governments opted for the opposite.
As such, even if reverse causality is a natural and omnipresent
concern in growth empirics, the existing literature would indicate
that it would bias the estimates in the present paper in the opposite
direction.
9
The present data display a standard Kuznets curve with turning
point at a GDP per capita of approximately 2600 USD. Strong
regional effects also pertain – Sub-Saharan Africa (+12 points) and
Latin America (+9 points) are more unequal, the postcommunist
countries less so (÷6 points) compared to the West – but government
ideology is not significant.
306 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308

Table 3
Allowing for non-linearities
Sample 1 2 3 4 5 6
Random effects Fixed effects
Inequality − .0014 (.0036) − .0027 (.0035) −.0027 (.0035) .0066 (.0044) .0049 (.0043) .0049 (.0043)
Inequality squared − .0047⁎⁎ (.0019) − .0051⁎⁎⁎ (.0019) −.0051⁎⁎⁎ (.0019) − .0022 (.0027) −.0021 (.0026) − .0019 (.0026)
Political ideology .0053⁎⁎ (.0024) .0067⁎⁎⁎ (.0023) .0067⁎⁎ (.0029) .0036 (.0024) .0068⁎⁎⁎ (.0025) .0071⁎⁎ (.0031)
Ideology⁎ inequality .0107⁎⁎⁎ (.0027) .0107⁎⁎⁎ (.0027) .0099⁎⁎⁎ (.0032) .0097⁎⁎⁎(.0033)
Ideology⁎ inequality squared −.0001 (.0026) − .0007 (.0035)
Observations 229 229 229 229 229 229
Countries 74 74 74 74 74 74
R square within .210 .237 .237 .477 .510 .510
R square between .352 .453 .452 .024 .015 .015
Chi squared 76.52 98.46 97.98
F statistic 9.98 10.50 10.73
Note: All estimates include full specification and use the larger sample (Gastil b= 3); ⁎⁎⁎ (⁎⁎) [⁎] denotes significance at p b .01 (p b .05) [p b .10].

I therefore discuss the implications of the results in the
final section.
4. Conclusions
The lessons of the empirical growth literature have
been ambiguous with respect to the effects of income
inequality on economic growth by showing negative,
positive and zero results. Most theoretical explanations
of the potentially negative effects of inequality have
rested on the growth-reducing effects of either social
unrest or redistributive government policies introduced
to combat inequality itself or its social consequences. As
such, the association between inequality and growth
may arguably be mediated through the reactions of the
government, yet no studies to date have explored
whether the ideology of the incumbent government
affects this association. The results presented in this note
suggest a necessary qualification to both standard
theoretical explanations of the negative effects of
inequality as well as the positive effects found in recent
empirical studies: allowing for the growth-income
inequality association to vary with government ideology
reveals that income inequality is likely to be positively
associated with growth when the incumbent government
leans to the political right, but negatively associated
with growth in the opposite political situation.
As these findings are new, they must necessarily be
subject to further scrutiny. In principle, for example, it is
entirely possible that the present measure of government
ideology simply proxies for the ideological proclivities
of society and thus picks up an effect of the tolerance of
inequality of the median voter (cf. Alesina et al., 2001;
Alesina and Angeletos, 2005). However, such social
norms are likely to change only slowly over time, and
probably only little across the five-year periods in this
note. Given that the main findings here apply to both
random and fixed effects estimates, this otherwise
theoretically valid possibility does not seem a likely
explanation for any medium-run relation between
growth and inequality, although it provides interesting
perspectives for long-run growth. Another possibility is
that the findings are spurious, which is addressed by
testing their robustness to excluding groups of observa-
tions and including a small set of additional relevant
factors. The findings prove robust to these very simple
tests although it should be noted that the exclusion of
five Sub-Saharan African countries reduces the esti-
mates to a more plausible size. Consequently, as a first
impression the results therefore appear to be more than
spurious correlations.
The size of the estimates also warrants attention. In
the present sample, the mean growth rate is 1.86% per
year, yet the estimates suggest that at the mean income
inequality – a Gini coefficient of 39 – a move from a
center government, which in most countries would
mean a social democrat government, to a center-left
government would be associated with a reduction of the
annual growth rate of .28 percentage points. Symmet-
rically, a move to a moderately rightwing government as
the current German coalition between social democrats
and Christian democrats, would imply a similar growth
increase. Yet, in countries with an income inequality
five points above the mean, such as Costa Rica or
Mauritius, these differences increase by about two
thirds, and may thus tend to account for their more
unstable growth performance. Alternatively, in countries
with a very equal income distribution such as in
Scandinavia, the association between political ideology,
inequality and growth becomes negligible.
A possible first interpretation of these findings could
rest on the fact that income inequality as measured by
 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308 307

Gini coefficients is remarkably stable over time, not robustness of the findings as well as which policies
least in democratic countries. Hence, redistributive may generate the results seem potentially fruitful
policies adopted by most countries are probably directions of future research.
relatively ineffective (cf. Rodriguez, 1999); the results With respect to the theoretical considerations fol-
presented here are therefore a priori most likely to lowing from the present findings, most political
indicate a differential relation between growth and economy analyses of the inequality–growth relation
political ideology, depending on the existing level of posit a crucial role of government in mediating the
income inequality. As such, the growth rate may tend to inequality–growth relationship, yet virtually all do so in
increase if a rightwing government comes to power in a a median-voter setting. On a somewhat broader scale,
country with a relatively skewed income distribution, however, there seem to be no good reasons to assume
since it will be less likely to introduce policies aimed at that other economic and political outcomes exist
reducing inequality or increasing the provision of irrespective of the ideology of the government. Given
public goods that could possibly weaken the incentive that the findings in this paper can be replicated by future
structure in society, or it could design and implement studies, one of the many possible ways forward for the
such policies in a less heavy-handed way than political economy literature may therefore be to relax
governments leaning to the political left. Yet, the the assumption that all governments follow similar goals
incentives to introduce such ideological government with similar means and thus to allow for the ideology of
policies depend on the initial inequality in society – the the government to affect real economic relations.
perceived need for redistribution – which could give
rise to heterogeneous effects of ideology as well as a Acknowledgements
negligible growth-ideology association in fairly equal
societies. I am indebted to Niels Buus, Eric Crampton, Mogens
Similar theoretical stories consistent with the Kamp Justesen, Karsten Bjerring Olsen, Anna
empirical findings could be told in at least two other Rubinchik-Pessach, Lant Pritchett, participants at the
areas. First, in the case of the effects of social unrest 2004 meeting of the Public Choice Society and two
caused by inequality such events might be more likely anonymous referees for valuable discussions and
under leftwing governments if either the organizers or comments on previous versions.
participants of e.g. demonstrations perceive such
governments to be more likely to give in to their pres- Appendix A
sure. Second, prioritizing redistributive policies high-
ly could potentially imply assigning low priority to Table A1
other policies such as institutional investments that Descriptive statistics
would be more conducive to growth. Given that such Variable Mean Standard Observations
priorities differ with political ideology, they could deviation
also provide some explanation for the present find- Economic growth .0186 .0254 275
ings. Surely, a number of other parallel theoretical rate
possibilities exist that could be explored in future Log initial GDP 8.9716 .8607 275
(10,612) (7079)
research. Postcommunist .0691 .254 275
It must be stressed that the empirical results are Openness 68.5759 42.5423 275
entirely preliminary and, consequently, so is any Population growth .0619 .0559 274
attempt at interpreting these results. The findings Ethnic diversity .3391 .2269 275
here, which are necessarily short-to-medium run due Investment price 1.4033 .7276 273
Government 17.6563 8.5548 273
to the choice of five-year periods, also do not exclude consumption
the possibility that inequality could have overall Income inequality −.1981 .8959 233
negative effects in the long run. Perhaps most (39.2696) (9.3457)
importantly, given the necessary qualifications the Political ideology .0706 .6916 272
existing literature yields only limited insights into Schooling 7.1235 2.6314 251
Economic freedom 6.3416 1.0339 267
which policies connected to ideological reactions to Investments 18.7566 7.4756 273
inequality may drive the association with growth, Transfers and subsidies 12.2132 8.8672 243
although recent studies have begun exploring the topic Average democracy 1.5748 .6895 275
(cf. Besley and Case, 2003; Lee et al., 2004). Yet, given Note: Numbers in parentheses are GDP per capita and unscaled Gini
the clarity of the findings, empirical explorations of the coefficients.
308 C. Bjørnskov / Journal of Development Economics 87 (2008) 300–308

Table A2 Deininger, K., Squire, L., 1996. A new data set measuring income
Data definitions and sources inequality. World Bank Economic Review 10, 565–569.
Fölster, S., Henrekson, M., 2001. Growth effects of government
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expenditure and taxation in rich countries. European Economic
Initial GDP per Heston et al. Penn World Tables, Mark 6.1. GDP; Review 45, 1501–1520.
capita (2002) Growth in real GDP; price of Forbes, K., 2000. A reassessment of the relation between inequality
GDP growth investment relative to and growth. American Economic Review 90, 869–887.
Population consumer prices; government Freedom House, 2005. Freedom in the World 2005. The Annual
growth share of GDP; trade volume as Survey of Political Rights and Civil Liberties. Rowman and
Government percent of GDP; investment Littlefield, Lanham.
consumption share of GDP. All data are Gwartney, J., Lawson, R., 2005. Economic Freedom of the World:
Openness adjusted for purchasing power 2005 Annual Report. The Fraser Institute, Vancouver, BC.
Investments and are in 1995 US prices. Heston, A., Summers, R., Aten, B., 2002. Penn World Tables, Version
Democracy Freedom Gastil index from 1 (full political 6.1. Center for International Comparisons (CICUP), University of
House rights) to 7 (no rights). Cut-off for Pennsylvania.
(2005) full rights is a score of 3. Douglas, A., 1977. Political parties and macroeconomic policy.
Inequality UNU Gross income Gini coefficients; 6.6 American Political Science Review 71 (4), 1467–1487.
(2005) is added to estimates based on Kaldor, N., 1956. Alternative theories of distribution. Review of
expenditure data. Economic Studies 23, 83–100.
Ethnic Alesina Probability that two random citizens Keefer, P., Knack, S., 2002. Polarization, politics and property rights.
diversity et al. (2003) share ethnic origin. Links between inequality and growth. Public Choice 111, 127–154.
Political Bjørnskov See text. Lee, D.S., Moretti, E., Butler, M.J., 2004. Do voters affect or elect
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Economic Gwartney Economic freedom index, distributed Economics 119, 807–859.
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Schooling Barro and Average years of schooling Michelbach, P.A., Scott, J.T., Matland, R.E., Bornstein, B.H., 2003.
Lee (2001) attainment. Doing Rawls justice: an experimental study of income distribution
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Mulligan, C.B., Gil, R., Sala-i-Martin, X., 2004. Do democracies have
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