Tuesday 14 September 2021 8:32am

An Otago researcher's recent study into international differences in income inequality found that many of the very old and very new nations have greater income inequality than those that are of intermediate age.

Trung Vu 2021 image
Trung Vu.

Otago Department of Economics researcher and PhD student Trung Vu has recently examined the role of statehood experience, obtained from 3500 BCE to 2000 CE, in shaping contemporary income distribution.

After reading through recent research on the topic Trung collected international data for all variables described in the paper. Exploiting cross-country data, he applied numerous econometric methods to test the proposed relationship between statehood experience and income inequality. His research was published in the journal Economic Modelling.

Trung's main findings indicate that countries with an intermediate level of statehood experience are more likely to enjoy low degrees of income inequality. By contrast, an unequal distribution of income tends to proliferate in both young and very old states. This describes a U-shaped relationship between statehood experience and income inequality.

Accumulated statehood experience, up to a point, strengthens fiscal and legal capabilities, leading to a more egalitarian distribution of income. However, excessive state experience is associated with early emergence of extractive institutions and powerful elites, resulting in persistent inequality.

Trung says a better understanding of the extent to which accumulated statehood experience translates into substantial and persistent variation in income inequality across the globe is useful for formulating relevant policies.

“The results are suggestive of the scope for contemporary policies to break away from the long-term legacy of the formation and development of historical states. Reducing income inequality in long-standing and young states is challenging partially due to the persistent impact of state history. Moreover, the efficacy of inequality-reducing policies should be compatible with the long-term legacy of history for present-day development, because it has a persistent influence on the environment through which current policies are designed. This is particularly important in many countries across the world, in which potential resistance to addressing income disparities still exists.”

As for New Zealand, Trung says despite being a relatively new nation, its state history was influenced by the massive migration of European colonisers. Therefore, New Zealand exhibits an intermediate length of ancestry-adjusted statehood experience, which helps improve the distribution of income.

Trung joined the University of Otago as a PhD student in 2019, having previously completed an MA in Economics at Ritsumeikan University (Japan).

Trung has a University of Otago Doctoral Scholarship, a Graduate Study Award from the New Zealand Association of Economists, and an Otago Business School PhD Conference Travel Funding Scholarship.

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