Why Do Societies With Higher Average Cognitive Ability Have Lower Income Inequality? The Role of Redistributive Policies

Abstract

SummaryPast studies suggest that, across nations, the average cognitive ability of a population is negatively associated with income inequality; societies with higher average cognitive ability tend to have lower levels of income inequality. However, it is not clear why. This paper proposes that social transfers from the wealthy to the poor may be a major mechanism by which some societies achieve lower income inequality than others, because more intelligent individuals may be more likely to have a preference for such transfers. Publicly available societal-level data were analysed in a series of multiple regression models. The empirical results in this study replicate the earlier finding that societies with higher cognitive ability have lower levels of income inequality, but the association is entirely mediated by social transfers. Social transfers therefore appear to be the primary mechanism by which societies with higher levels of cognitive ability achieve lower income inequality.

Income Inequality, Capitalism and Ethno-Linguistic Fractionalization

“…Parts of the KOF economic globalization index are included, as several authors have argued that economic globalization has led to more within-country income inequality (see, for instance, Feenstra and Hanson 1996). 3 Since Jaumotte, Lall, and Papageorgiou (2013) find 1 Indeed, the papers discussed in the next section examining the relationship between redistribution and fractionalization draw their measure of redistribution from the EF index. 2 To be precise, the EF index reflects the time period t − 3, when the five-years average of the Gini coefficients is centered at period t. Also the control variables have been constructed in this way.…”

“…This time lag is to avoid endogeneity issues. 3 The KOF economic globalization index consists of two parts. Whereas the first part is based on actual across border flow data (trade, foreign direct investment, portfolio investment, and income payments), the second part looks into trade restrictions like the existence of hidden import barriers, tariff rates, taxes on trade, and capital account restrictions.…”

Cognitive abilities and income: preliminary evidence from a developing country

“…Related literature finds that human capital, measured by cognitive abilities have a positive relationship with wide range of socio-economic outcomes at individual and social levels. For example, cognitive abilities are positively correlated with national income (Jones and Schneider, 2006;Hanushek and Woessmann, 2008), governance (Kodila-Tedika, 2014), financial development (Kodila-Tedika and Asongu, 2015), exports diversification (Kodila-Tedika and Asongu, 2018), welfare (Hafer, 2017) and national wealth (Rindermann et al, 2015), environmental quality (Salahodjaev et al, 2016), happiness (Veenhoven and Choi, 2012), wellbeing (Rindermann, 2018) and redistributive policies (Salahodjaev and Kanazawa, 2018). For example, Potrafke (2012), using data from 119 countries, finds that human capital, proxied by intelligence quotient (IQ) scores, has a significant negative association with corruption levels.…”