Economic Globalization and Income Inequality Upswings Within 25 Industrial Countries Over 1990-2009: Did the Welfare State Make a Difference

Previous research is divided over whether globalization had an effect on income inequality upswings observed in many advanced economies in recent decades, and whether the welfare state is redistributive in this era of economic globalization. This paper, using income inequality and globalization indicators from 25 industrial countries over 1990 to 2009, found that globalization had differential effects on income inequality depending on the method of analysis (i.e., fixed-effect versus random-effects estimation), as well as on whether income inequality is measured before or after taxes and income transfers. The results also showed that the welfare state is still redistributive, and attenuated the effects of globalization on within-country income inequality in the 25 countries over the period under study. Reassessing the liberal economics claim that the welfare state is counterproductive and retards economic growth, this study found no evidence that the welfare state hindered economic productivity and growth in these countries.