The distributive effects of institutional quality when government stability is endogenous

Abstract

Redistribution is the strategic response of the incumbent to a decrease in its survival probability resulting from weak institutions and growing income inequalities. The purpose of the paper is to test empirically the validity of this conjecture. System and single equation estimations provide a consistent picture: (i) bad institutions increase income inequality, while more redistribution reduces income inequality; (ii) greater inequality increases the probability of government termination; and (iii) a higher probability of termination increases the extent of redistribution. Overall, there is strong evidence in support of the proposed conjecture.