Cross-country analysis of aggregate markups and their impact on income inequality.

Introduction

In recent years, the debate on the causes and consequences of rising income inequality has taken on considerable relevance in economic research. As the power of large companies has increased, with more concentrated markets in critical sectors, concern has arisen about how markups -or price margins that exceed production costs-influence income distribution and countries’ ability to reduce poverty effectively. High markups, which reflect the market dominance of large corporations, allow these companies to obtain greater profits, affecting market competitiveness and equity in the distribution of the wealth generated (De Loecker & Eeckhout, 2018), understanding that significant gaps in economic inequality distort the market. Excessively high markups can also increase innovation, as by reducing market competition, companies have less incentive to invest in new developments and improve their products. This stagnation limits opportunities for inclusive growth and can reinforce income disparities. Our analysis focuses on how high markups affect income inequality, considering the role of various control variables. Understanding whether differences in markups across countries with different levels of development are associated with variations in income inequality is critical, as this relationship may reveal important insights into how market structures influence economic disparities and inform better public policies aimed at income redistribution.

This phenomenon becomes especially problematic in economies with limited competition in emerging and developing countries. However, the effects of markups are different; they depend on many aspects, such as each country’s institutional characteristics.

Economies with inclusive institutions that foster competition and regulate market power tend to have lower markups and more equitable income distribution (Acemoglu & Robinson, 2023). In contrast, in countries with extractive institutions¹, High markups tend to concentrate wealth in the hands of a few companies, deepening inequality gaps and perpetuating poverty (Stiglitz, 2020). Another example is that the lack of institutionalisation in developing countries generates high levels of corruption, subsequently leading to higher levels of inequality. It is like a vicious circle.

Although the impact of markups on macroeconomic dynamics has been widely studied, their direct relationship with income inequality across countries with different levels of development with different economic systems² (Demir et al., 2022), has yet to be explored. This analysis’s classification of tree groups of development and economic systems is crucial for understanding the institutional and policy frameworks that shape market dynamics and socio-economic outcomes in different contexts. Developed countries like the United States, Germany, Japan, and Australia operate under free-market systems supported by substantial property rights and competitive markets encouraging innovation. As North (1991) highlights, well-defined institutions such as the rule of law and property rights are fundamental to sustainable economic growth. Also, Robinson and Acemoglu (2012) emphasise that inclusive institutions ensure stability and help reduce extreme inequalities.

In contrast, emerging economies such as China, India, Mexico, and South Africa demonstrate hybrid systems that balance market-oriented reforms with strategic state interventions. Rodrik (2004) explains that these mixed approaches are common in economies transitioning to higher development levels, where the state plays a critical role in protecting key sectors and addressing market failures. One form of state intervention is through state-led initiatives, where the government actively promotes and supports industrial development, mainly where markets are underdeveloped. Similarly, Lin and Chang (2009) highlight the importance of such initiatives in fostering industrial development.

Developing countries, including Peru, Colombia, Venezuela, and the Philippines, often face the challenges of weak institutions and insufficient regulatory frameworks, which limit competition and exacerbate inequality (Sen, 1999). However, as Stiglitz (2001) points out, this is not a permanent state. Markets tend to concentrate power in such environments, worsening income disparities, but with the right reforms, this can change. Easterly (2001) underscores how inconsistent policies and institutional limitations perpetuate poverty and inequality cycles and how these can be overcome. This classification underscores institutions’ varying roles in shaping economic systems and outcomes, offering hope for change.

This type of analysis is essential to understand how the structure of markets and institutional regulations affect the distribution of wealth and economic opportunities, especially among the most vulnerable households. Even though classical economists do not find a severe income inequality problem, it has many economic and social implications, including human behaviour.

When markups become excessively high, they can lead to inefficiencies, reducing consumer welfare and limiting economic mobility³ (Hovenkamp, 2023; Enke, 1945). Recent research suggests that in developing countries, markups in essential sectors, such as food and energy, disproportionately affect low-income households, limiting their ability to access essential goods and thus exacerbating poverty levels (Almunia & Antràs, 2019). Beyond the direct economic impact, high markups also have significant social consequences.

From the behavioural economics perspective, researchers such as Thaler (2017) and Kahneman (2002) have shown that inequality aversion plays a fundamental role in how people perceive inequalities and act accordingly. In contexts where income disparities are significant, people tend to experience a strong sense of injustice, which affects cooperation and trust in institutions and generates social and political instability (Fehr et al., 1999).

This study aims to analyse the impact of aggregate markups on income inequality in a sample of developed, middle-income and developing countries. Data from 12 countries will be analysed, and the results will be distributed as follows: four developed countries, four middle-income countries, and four developing countries. They will be selected based on the economic system, institutional diversity, development level, and information availability. The countries considered in this analysis include the United States, Germany, Japan, India, Mexico, the Philippines, Colombia, South Africa, and Australia, representing a broad range of continents and cultures, with data covering the period from 1997 to 2016. This time interval will allow observing these two decades’ long-term effects and structural changes.

The methodological approach will be a panel data econometric analysis, which will capture variations over time and across countries. To separate the specific effects of markups on inequality, factors such as GDP per capita growth, research and development, R&D as a percentage of GDP, trade openness, taxes on income, trade openness and poverty will control the model. Poverty levels are reflected in the percentage of the population living below the international poverty line. Robustness tests will also be carried out to ensure the robustness of the results, along with a comparative analysis between economies to identify possible differences in the effects of markups in both contexts.

Theoretical framework

Income inequality is associated with various economic and social challenges, such as reduced economic mobility, social instability, and obstacles to long-term growth (Stiglitz, 2012; OECD, 2015). It restricts access to essential resources for lower-income groups and exacerbates economic divides, resulting in less inclusive economic outcomes (Atkinson, 2015; Piketty, 2014). The link between markups and income inequality has been the subject of intense debate in the current economic literature. Markups reflect the ability of firms to set prices above their production costs, which indicates their market power. In highly competitive markets, this ability is limited, but in sectors where few firms predominate, or there is a high concentration, markups tend to be much higher (De Loecker & Eeckhout, 2018). This increase in the power of large firms has led many economists to reflect on their impact on income distribution and inequality.

High markups contribute to inefficiency by inflating consumer prices, which reduces purchasing power and worsens income inequality. They indicate lower competition, leading to misallocated resources and stifled innovation, as firms experience less pressure to improve. Recent studies have investigated the complex interplay between innovation, market power (markups), and income inequality. Aghion et al. (2019) analysed U.S. data, and they found that increased innovation correlates with a higher income share for the top 1%, indicating that innovation may exacerbate income inequality at the upper end of the distribution. Karagiannis and Tsoulfidis (2019) extended this analysis globally, concluding that while innovation incentivises economic growth, it often leads to greater income inequality, mainly when its benefits are unevenly distributed.

Guellec and Paunov (2017) focused on digital innovation, arguing that technological advancements can result in market concentration and increased market power for leading firms, thereby heightening income inequality. Similarly, Aghion et al. (2021) found that increased market concentration, often driven by innovation, can stifle competition and contribute to rising income inequality. These studies suggest that although innovation drives economic progress, it can increase income inequality, mainly when market power is concentrated among a few dominant firms. However, addressing the dominance of large technological oligopolies requires a balanced approach that combines fostering innovation with implementing antitrust policies. By encouraging new firms to enter the market through reduced regulatory hurdles and strategic support, the competitive landscape can shift, challenging the market power of established players (Spulber, 2023). At the same time, antitrust measures are crucial to curbing monopolistic practices, such as unfair pricing strategies or restrictive competition policies. This dual approach helps drive prices closer to production costs, benefiting consumers and smaller businesses. Furthermore, innovation-focused initiatives can enhance sector-wide productivity, offering diverse and competitive alternatives to the entrenched influence of tech giants. Together, these measures ensure a more equitable and dynamic market environment while safeguarding against excessive concentration of power.

Additionally, high markups create barriers to market entry, which diminishes economic dynamism and hampers equitable wealth distribution (Autor et al., 2020; De Loecker & Eeckhout, 2018; Syverson, 2019). According to De Loecker & Eeckhout (2018), the upward trend in markups over the last two decades reflects how market power has concentrated in a small group of large corporations, especially in technology, telecommunications and pharmaceuticals. By controlling the market, these companies can set higher prices, generating higher profit margins. These profits tend to be concentrated in the hands of the owners of capital, reducing the proportion of income received by workers and consumers. According to the last authors, these gaps contribute to increased income inequality. Subsequently, why is it not so suitable to have significant gaps in economic inequality?

Thomas Piketty (2014) analyses how this dynamic has powered inequality over time. In his work on capital in the 21st century, Piketty argues that the return on capital has consistently exceeded the rate of economic growth, which has allowed those who already own capital (shareholders and business owners) to see their wealth grow at a faster pace than the rest of the population. In this context, markups play a central role by allowing large firms to capture a larger share of the wealth generated, thereby intensifying the disparities between those who own capital and those who depend on their wages. Also, it is even worse in Latin America, which has a greater concentration of wealth in a few, making it the most unequal continent.

On the other hand, Milton Friedman and neoliberal economists have long argued that this pricing power is temporary (Friedman, 1962). In their view, competitive markets should regulate themselves, as the entry of new firms would reduce markups over time. However, Joseph Stiglitz (2001) criticises this view, arguing that, in practice, market concentration and weak competition policies have allowed markups to remain high, thus contributing to rising inequality. Stiglitz emphasises that market failures that enable markups to persist will not be automatically corrected and that the resulting inequalities require more active intervention. Understanding this analysis, the effects of income inequality are very different in the three distinct groups of countries, and the impact is less in developed countries due to their strong economies and better institutions.

Grouping countries in an economic system provides valuable insight into the interplay between markups and income inequality. A country’s economic framework (whether focused on free-market principles, state-driven policies, or a mixed approach) directly impacts competition, market entry, and income redistribution (Tybout, 2000). Developed nations, with their robust institutions, often mitigate the adverse effects of high markups more effectively. In contrast, emerging and developing economies frequently grapple with persistent high markups due to weaker institutions. Incorporating this variable allows a deeper understanding of how different economic systems shape the connection between markups, inequality, and overall economic performance.

We hypothesise that countries with lower levels of income inequality tend to have smaller markups than those with higher inequality. In such economies, prices often align more closely with production costs, promoting a competitive market and making goods and services more accessible for all income groups (Moon et al., 2011). This balanced pricing structure may help prevent wealth from concentrating at the top, as firms possess less power to set high markups, and wages are likely to be more evenly distributed. Consequently, higher income inequality may be associated with economies where markups are more significant, primarily benefiting a few dominant firms.

Monopolies and oligopolies are like the big players in the game where competition barely exists, letting one or just a few companies take the lead. In a monopoly, a single company holds all the cards, setting prices as high as they want because there is no one else in the ring to challenge them (Stigler, 1988). Oligopolies are not much different; with just a handful of firms calling the shots, prices can soar, and consumer choices dwindle (Tirole, 1988). This lack of competition means these companies have little motivation to innovate or cut costs, leading to a stale market where consumers do not get the best products or prices (Schmalensee, 1989). Also, these dominant players often create obstacles that keep newcomers out, ensuring their reign remains unchallenged and leaving consumers with fewer options (Carlton & Perloff, 2005).

The outcome from these market dynamics stretches far beyond just higher prices—it significantly contributes to growing income inequality. When companies earn significant profits through high markups, that wealth often lands in the hands of a select few executives and shareholders. At the same time, everyday workers and consumers bear the impact (Galbraith, 1998). This concentration of wealth creates a barrier for many, making it challenging for them to move up the economic ladder while those at the top keep reinforcing their status (Autor et al., 2020). In addition, with less competition, workers have diminished bargaining power, leading to stagnant wages and fewer benefits. This cycle of inequality continues to widen the gap between the rich and the rest of society (Atkinson, 2015).

The role of public institutions in moderating market power cannot separate the debate on markups from Acemoglu & Robinson (2023), this reference is Robinson and Acemoglu (2012) who have proposed that inclusive institutions tend to promote competition and, therefore, limit firms’ ability to set high prices on a sustained basis. According to these authors, when institutions are solid and transparent, the market is regulated more equitably, reducing the concentration of power and improving income distribution. For instance, good practices in competitive markets can be found in the firms of Nordic European countries.

This approach contrasts with Mancur Olson’s view (1982), which argues that modern societies are frequently captured by interest groups that manage to influence public policies to protect their economic interests. In such contexts, extractive institutions are created, which favour elites and perpetuate the concentration of market power. From this perspective, high markups not only reflect a lack of competition but also the ability of these elites to influence the rules of the game in their favour. Thus, robust institutions in developed countries play a crucial role in curbing such influence, ensuring fair competition, and fostering a more balanced economic environment.

Stiglitz (2020) reinforces this thinking by highlighting that market power is tolerated and often encouraged in many countries with extractive institutions. In these cases, governments and the most potent companies cooperate to perpetuate income concentration, preventing a fairer wealth distribution. For Stiglitz, public institutions play a crucial role in moderating the market: when these institutions are transparent and oriented toward the common good, they promote competition and, in doing so, limit the excessive accumulation of market power. Considering that the classical economy is based on incentives, the capitalist does not have the role of looking after social interests, nor should they; state institutions must look after social policies such as a better distribution of resources, whether through taxes, subsidies or social policies. For instance, taxes are crucial in improving income distribution and reducing societal inequality. Taxes are a primary mechanism through which governments can redistribute wealth, funding essential public services like education, healthcare, and social welfare programs that benefit lower-income individuals and families (Barr, N. 2020). Progressive tax systems, where higher earners pay more of their income, can effectively reduce disparities by reallocating resources to those in greater need (Rybakov et al., 2022). Moreover, the relationship between direct taxes and GDP can provide valuable insights (Maganya, 2020). Our study investigated how effectively these 12 countries manage their income distribution. Including this relationship in our model could reveal how direct taxation.⁴ changes correlate with income inequality shifts, enhancing our understanding of fiscal policy’s impact on economic equity (Pacheco-Jaramillo, 2023; Gunasinghe et al., 2021).

Douglass North (1990) offers another perspective, arguing that institutions affect competition and the market and foster trust. North notes that trustworthy and transparent institutions facilitate more efficient and fair economic transactions. On the other hand, in markets where markups remain high due to a lack of competition, distrust in institutions can lead to financial and social instability.

The impact of markups in developing countries is even more acute, as lower-income consumers are especially vulnerable to high prices in essential sectors. In Latin America, if we consider an average salary of 400 USD per month for an operator compared to a manager’s 20,000 USD, the income gap exceeds 5,000%. While the manager’s role may justify higher pay, this disparity can seem unfair to lower-wage workers, affecting their motivation (Statista, 2023). In the 12 countries analysed, high markups contribute to wealth concentration, especially in settings with limited competition, poor institutional quality, and low investment in innovation. Richard Thaler (2017) argues that people care not only about their income but also about how they compare to others, so when inequality is visible, it generates frustration that can lead to reduced cooperation. Daniel Kahneman (2002) reinforces this by showing that social comparison directly impacts perceived well-being, where visible inequality can lead to dissatisfaction and political instability. Similarly, Ernst Fehr and Schmidt (1999) suggests that individuals may sacrifice their income to “punish” perceived injustices, indicating that high markups and concentrated wealth can erode social cohesion and economic stability across these nations. Almunia and Antràs (2019) show that high markups on food and energy impose a disproportionate burden on low-income households, who spend a more significant share of their resources on these goods in emerging markets. The lack of competition in these sectors allows large companies to dominate the market and maintain high prices, perpetuating poverty in these economies (Sachs, 2005). A good example of wealth concentration is in Ecuador, a Latin American country. Three large banks (oligopoly) can influence the set of interest rates in a dollarised economy. In the same way, few importers control the prices of the most imported products (Fierro Carrión, 2016).

Similarly, Monga and Ndulu (2020) analyse how high markups in strategic sectors, such as energy and telecommunications, restrict the access of the poorest households to essential services in sub-Saharan Africa. These authors highlight that the lack of access to affordable services perpetuates poverty and limits people’s ability to participate in the economy more productively, trapping them in cycles of economic exclusion.

Although some economists, such as Paul Collier (2007), have argued that the solution could lie in increasing trade openness and foreign direct investment, other authors, such as Ha-Joon Chang (2008), warn that without adequate regulation, trade openness could lead to new forms of market concentration. Chang suggests that trade liberalisation without safeguards could allow large foreign companies to capture the local market, potentially exacerbating inequality and poverty problems. There is no dispute that there are many opportunities when there is open trade or for the entry of foreign investment. The problem is that these openings could generate more inequality in countries with poor institutionality.

Methods

This study investigates the relationship between aggregate markups with income inequality and control variables across 12 countries for 20 years, from 1997 to 2016. By integrating data from multiple global and national sources, we aim to provide a comprehensive and nuanced understanding of how market power influences inequality across diverse economic and institutional contexts. Our approach combines well-established international databases. This combination of international databases ensures we capture various economic realities, from advanced economies with robust markets to developing countries with more concentrated sectors and weaker institutions. The data for the variables used in this analysis is sourced directly from the World Bank database platform (https://databank.worldbank.org), where users can filter information by variable and period as needed. However, the data related to markups or aggregate markups is exclusively obtained from the National Bureau of Economic Research database NBR, specifically from the work of De Loecker, J., and J. Eeckhout (2018): “The Rise of Market Power and the Macroeconomic Implications,” published as an NBER working paper. This dataset is available on their official website (https://sites.google.com/site/deloeckerjan/data-and-code) under the title “Aggregate markups from Global Market Power: Country-year (xls) and Continent-year (xls).” This source provides detailed country-level and continent-level data on aggregate markups, which is critical for macroeconomic analyses of global market power.

Our analysis focuses on income inequality as the key dependent variable, measured through the Gini coefficient. We include markup and control variables ( Table 1) to account for other factors influencing inequality, such as GDP per capita, poverty, trade openness, innovation as a percentage of GDP and taxes on income (direct taxes). GDP per capita purchasing power parity (PPP) is used because it offers a consistent way to compare economic well-being across countries by adjusting for price differences and inflation. This measure ensures that variations in purchasing power and living standards are accurately reflected and free from currency distortions.

Three groups were established to classify countries: developed countries, emerging countries ( Table 2), and developing countries—this classification aimed to identify associations or patterns between income inequality, markups, and various controlled variables. Their economies’ stability and the Gini coefficient’s volatility were also considered. For instance, the Gini coefficient in developing countries often exhibits significant fluctuations linked to government changes. The table below presents the motivation behind selecting the 12 countries analysed.

After selecting the variables and the countries, we test the association between the markup and income inequality and its controlled variables through an econometric panel model. Thus, we will examine variables like aggregate markups, taxes on income, GDP per capita PPP, trade openness, poverty and innovation.

Descriptive analysis

The markup trends across the 12 analysed countries reveal distinct dynamics, highlighting differences between developed, emerging, and developing economies. In developed economies, markup increases tend to be gradual and stable as shown in Figure 1. For instance, the United States saw its markup rise from 1.56 in 1997 to 1.78 by 2016, while Germany’s markup showed a steadier trend, increasing from 1.20 to 1.35 over the same period. Australia, however, stands out with a sharper upward trend, where its markup grew significantly from 1.02 in 1997 to 1.57 in 2016, suggesting increased market power within specific sectors. These changes reflect relatively well-regulated markets where additional revenue capture does not lead to extreme income disparities.

Figure 1. Markup trends developed countries.

Source: National Bureau of Economic Research (NBER).

By the authors.

Emerging economies like China, India, Mexico, and South Africa display more varied trends as shown in Figure 2. China experienced a markup decline from 1.36 in 1997 to 1.22 in 2016, indicating improving market competition in some sectors. India, in contrast, saw fluctuations before its markup rose to 1.32 by the end of the period. Mexico’s markup remained higher than many other countries, peaking at 1.86 in 2010 and stabilising around 1.55 by 2016. South Africa exhibited an upward trajectory, with its markup increasing from 1.02 in 1997 to 1.34 in 2016, reflecting market power consolidation in critical industries. These trends suggest that while some emerging markets are moving toward greater competition, others continue to face challenges from concentrated market power.

Figure 2. Markup trends emerging countries.

Source: National Bureau of Economic Research (NBER).

By the authors.

Developing economies show even greater volatility, often experiencing dramatic markup swings as shown in Figure 3. Peru, for example, peaked at 3.9 in the early 2000s before declining to 1.6 by 2016, indicating significant market restructuring. Similarly, Venezuela exhibited swings from 2.5 to 1.2, reflecting economic instability and weaker regulatory frameworks. In contrast, the Philippines maintained relatively stable markups, fluctuating between 1.3 and 1.7. Colombia saw a marked decline, with its markup decreasing from 2.5 to approximately 1.6, pointing to improved regulatory environments. These patterns suggest that in developing countries, reducing high markups could align with policies aimed at income redistribution. However, the econometric analysis will assess how these markups interact with income inequality and control variables.

Figure 3. Markup trends developing countries.

Source: National Bureau of Economic Research (NBER).

By the authors.

Figure 4. Trends Markup (blue) vs Gini Index (red), Developed, emerging and developing countries groups.

While the relatively stable increase in markups in developed economies does not significantly exacerbate income inequality, it does not act as a mechanism to reduce it. Despite higher markups reflecting increased market power and profitability in specific sectors, the additional revenues are not necessarily channelled towards reducing income disparities. Instead, they often benefit shareholders and executives, leaving the underlying income distribution unchanged. The stability in inequality observed in developed countries is more likely the result of robust redistributive policies and social safety nets than the impact of markup dynamics.

Markup vs Gini index

In developed countries like the United States, Germany, and Australia, we noticed a trend: income inequality increased as companies made more profit. For example, in Australia, the profit margin grew significantly from 1.01 in 1996 to 1.56 in 2016, about a 54% increase. The gap between the rich and poor widened slightly during the same period. This suggests that when businesses are doing well and earning higher profits, the extra wealth might not be shared evenly among everyone, leading to greater income inequality.

Moving on to emerging economies such as China, India, Mexico, and South Africa, the picture is less clear. In Mexico, company profit margins increased until 2007 and then declined. Interestingly, income inequality has been decreasing since 1998. This could mean that other factors—like government policies, economic reforms, or social programs—play a significant role in how income is distributed, overshadowing the impact of company profits.

Company profit margins and income inequality have decreased in developing countries like Peru, Colombia, Venezuela, and the Philippines. Take Peru, for example: from 1997 to 2016, the profit margin dropped from 2.89 to 1.64, and income inequality decreased significantly. This might indicate that as companies have lower profit margins, wealth is being spread more evenly among the population, reducing the gap between the rich and the poor.

Nevertheless, we must look at the bigger picture to understand what is happening. Other important factors can influence income distribution, such as taxes on income, GDP per capita (PPP), trade openness, poverty rates, institutional quality, and innovation as % of GDP:

By including these factors in a more detailed analysis, we can better understand how company profits interact with various elements of the economy and society to influence income inequality. It is a complex puzzle, and each piece helps us see how to promote a fairer distribution of wealth worldwide ( Figure 5).

Figure 5. Trends Markup (blue) vs Innovation (red), Developed, emerging and developing countries.

Key findings

The chosen model employs a panel with two-way fixed effects (country and year) and cluster-robust standard errors at the country level. The analysis highlights key drivers of inequality ( Table 4). Lagged markups (mark_lag) significantly increase inequality, while innovation (ino) shows a weak, non-significant reduction. Tax revenue (tax) strongly reduces inequality, emphasising its redistributive role. The interaction between markups and innovation (I (mark_lag * ino)) is positive but insignificant, requiring further investigation. Trade openness (trade) significantly reduces inequality, whereas GDP per capita (gdpp) slightly increases it. Suggesting that growth alone may not address inequality effectively, reflecting the complex interplay of economic and policy factors shaping income disparities.

Why This Model Stands Out

This model is considered the best based on the following reasons:

Policies recommendations

Given the significant lagged effects of markup trends, competition authorities should closely monitor market structures and pricing power. Encouraging fair competition through reduced entry barriers, more vigorous enforcement against anti-competitive practices, and ongoing market oversight can mitigate inequality over time, particularly in emerging and developing countries.

Prioritising progressive and efficient tax systems is essential to effectively addressing inequality. Strengthening tax collection mechanisms and channelling resources into well-targeted social programs can maximise the redistributive impact.

The link between per capita GDP and inequality highlights that economic growth alone is insufficient for equitable outcomes. Policies that expand access to education provide robust social safety nets and ensure fair labour market practices are critical to distributing growth’s benefits more evenly.

Finally, the negative correlation between trade and inequality underscores the potential of global integration to narrow income gaps. However, to achieve inclusive benefits, complementary measures are needed to support vulnerable sectors, encourage technology adoption, and protect groups at risk of being left behind.

Conclusion

The final chosen model, which includes mark_lag and key control variables (inno, tax, gdpp, trade) and two-way fixed effects, offers a solid explanation of how delayed market power (markups) and fiscal policy influence inequality. By controlling for country-specific and year-specific effects, the model captures structural differences between more developed nations, where fiscal policies and trade openness tend to have more substantial redistributive effects, and less developed countries, where market power and weaker institutions may exacerbate inequality. This approach provides insight into current relationships, temporal dynamics, and structural conditions that shape income distribution. The evidence suggests that the most promising policies to mitigate inequality combine robust fiscal measures (to redistribute income), market regulations to prevent excessive markups, and strategies to ensure that economic growth and openness translate into more equitable outcomes.

Ethics and consent

No ethics and consent were required.