Three essays on income inequality

This dissertation consists of three complementary essays within the institutional economics framework that examine income inequality. Using a panel dataset covering 52 countries over 2002–2021, it (i) develops a baseline model that explicitly addresses endogeneity in the determinants of inequality, (ii) employs a non-linear panel threshold approach that treats institutional quality as a regime-switching device, and (iii) proposes a framework that evaluates cultural factors in interaction with institutions. In this way, the multidimensional structure of inequality is tested through alternative methods, yielding an integrated analysis. The first essay estimates the core determinants with the two-stage least squares (2SLS) method, purging endogeneity bias. The results show that institutional quality, technology, education, and trade openness reduce inequality, whereas financial freedom increases it. These findings point to the primacy of strengthening structural institutions and human capital, while carefully managing the distributional consequences of financial liberalization. From a methodological standpoint, the emphasis on model specification indicates that precise variable definition facilitates the identification of appropriate policy targets. The second essay, using a panel threshold method that allows the threshold variable to be endogenous, shows that inequality dynamics differ between regimes with inclusive and extractive institutions. In both regimes, improvements in institutional quality reduce inequality; however, consistent with the convergence hypothesis, the effect is stronger in countries characterized by extractive institutions. This implies prioritizing reforms that curb rents and privileges in extractive settings, while in inclusive settings, fine-tuning financial deepening with redistribution and a macroprudential framework. In the third essay, culture is incorporated alongside the institutional structure via a Hausman–Taylor-type hybrid panel estimator. Although the effect of culture appears weak in the pooled sample, it varies with countries' levels of institutional quality. In economies with extractive institutions, cultural norms do not meaningfully affect the income distribution, whereas under inclusive institutions, higher power distance is associated with greater inequality. Accordingly, culture should not be viewed as a context-invariant, static determinant but as a factor whose effect becomes salient as institutions become more inclusive; therefore, institutional reforms are critical not only for improving economic performance but also for establishing the institutional ground on which cultural norms can generate social outcomes.