Left-Wing Political Strength, Inclusive Institutions, and the Evolution of Capitalist Systems

Teng, Xingan (2025): Left-Wing Political Strength, Inclusive Institutions, and the Evolution of Capitalist Systems.

Abstract

This paper examines how left-wing political strength shapes the evolution of capitalist systems through the lens of income compositional inequality (IFC). Using LIS microdata for nearly 40 countries from 1978–2022, I construct an unbalanced panel of IFC and estimate two-way fixed-effects models with Driscoll–Kraay standard errors, complemented by dynamic panel GMM and a fuzzy RDD around close elections. Results show that stronger left representation reduces IFC and pushes economies toward liberal capitalism; a 10-percentage-point increase in left strength lowers IFC by about 0.0079—roughly 7.5% of the sample mean. Political checks and balances attenuate this distributive effect, while rule-of-law and property-rights institutions amplify it. Channel analysis based on the pseudo-Gini of capital indicates that the main pathway operates via reductions in capital inequality. The findings highlight that “inclusive institutions” are internally heterogeneous and interact with partisan power, offering a more granular account of distributive dynamics within democracies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Income composition inequality; Left-wing strength; Inclusive institutions; Capitalist systems
• Subjects: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; D - Microeconomics > D3 - Distribution > D33 - Factor Income Distribution; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy; P - Economic Systems > P5 - Comparative Economic Systems > P51 - Comparative Analysis of Economic Systems

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