EGALITARIANISM VERSUS ECONOMIC DYNAMICS? AN EMPIRICAL ASSESSMENT OF THE FRIEDMAN CONJECTURE
This chapter presents a cross-national comparison of income inequality and economic mobility in the United States and eleven (Western) European Union (EU) member states. Using panel data on income dynamics among prime-age workers in the mid-1990s, it demonstrates that standard inequality indices show surprisingly little cross-country variation in the degree to which income mobility, the market, does erode inequality over time. That is, the neoclassical assertion about the redistributive element inherent in market competition is clearly correct insofar as markets generate mobility over time as economic opportunity gets reshuffled across individuals. Applied to the specific sample of advanced Western economies, however, the assertion that more generous welfare states would stifle economic dynamics seems largely unsupported by the data. By implication then, the redistributive effort exerted by European welfare states seems relatively well-directed in genuinely addressing market failures and ameliorating permanent economic inequality without evidence of major distortions of economic dynamics.
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