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This paper examines the relationship between economic liberalization and income inequality in the EU using panel data for the 2000s. The empirical evidence suggests that economic freedom is strongly related to income inequality. However, not all areas of economic freedom affect income distribution similarly. Government size is robustly associated with inequality, and also when controlling for potential endogeneity in a dynamic panel data analysis. Regulation is linked to income inequality as well, whereas legal system and sound money have no significant effects on income distribution. In the case of freedom to trade internationally, the relationship differs between old (EU-15) and new (former socialist) EU countries.
Acknowledgements
The authors are grateful for the helpful suggestions from seminar participants at the University of Malaga and the University of Florence, and from discussions at the XII Economic Policy International Conference and the 6th Meeting of the Society for the Study of Economic Inequality (ECINEQ). In addition, we thank Giovanni Andrea Cornia, Stephen Jenkins, María E. Rochina-Barrachina, and two anonymous referees for their useful comments.
Disclosure statement
No potential conflict of interest was reported by the authors.