Turn the Bull Loose: Economic Freedom, Financialization, and Income Inequality in Advanced Industrial Societies

• In Event: 559 - Regular Session. Development

Abstract

A burgeoning field of research shows that financialization is positively associated with income inequality in advanced industrial societies. However, while it is well-understood that the recent explosion of financial activity increases in tandem with the deregulation of state controls over national economies, scholars struggle to find a straightforward connection between economic freedom and income inequality. The current study presents the argument that economic freedom does not share a direct connection to the distribution of national income. Instead, economic freedom serves as a mediating variable that conditions the connection between financialization and income inequality. These contentions are tested by way of interaction effects using a panel dataset of 25 advanced industrial economies for the years 1995 to 2008. The fixed effects regressions confirm the main arguments of this study as the inequality-producing effect of financialization is significantly higher at increasing levels of economic freedom. These results demonstrate that the reduction of state controls over the activities of powerful economic actors exacerbates the positive association between financialization and income inequality.

Author

• Roy Kwon, University of La Verne