Origins and persistence of economic inequality

Abstract

After reviewing the current literature on the causes of economic inequality, the article models the historical emergence of inequality as the result of a key technological change (i.e., the adoption of agriculture) that widened income differentials and led to the construction of state institutions, which shaped (depending on their particular nature, more or less authoritarian) the final distribution of economic assets within and across different societies. The article then explores the evolution of inequality in societies already endowed with state structures: A stream of biased technological shocks happens randomly and the "decisive" voter (who differs across political regimes) accepts or blocks them as a function of their effect on her net income. The decisive voter's response determines the overall distribution of income. The model is employed to give a coherent account of some broad historical trends in the evolution of income inequality. Copyright © 2010 by Annual Reviews. All rights reserved.