Long-term relatedness and income distribution: understanding the deep roots of inequality

Abstract

This article explores the role of long-term relatedness between countries, captured by an index of genetic distance, in driving worldwide differences in income inequality. The main hypothesis is that genetic distance gives rise to barriers to the international diffusion of redistributive policies and measures, and institutions, leading to greater income disparities. Using cross-country data, I consistently find that countries that are genetically distant to Denmark—the world frontier of egalitarian income distribution—tend to suffer from higher inequality, ceteris paribus. I also demonstrate that genetic distance is associated with greater bilateral differences in income inequality between countries. Employing data from the European Social Survey, I document that second-generation Europeans descending from countries with greater genetic distance to Denmark are less likely to exhibit positive attitudes towards equality. Further evidence suggests that effective fiscal redistribution is a key mechanism through which genetic distance to Denmark transmits to greater income inequality.