European Integration and Income Inequality

Date Published:

Abstract:

This paper extends contemporary theorizing on national income inequality to the possible role of regional integration in explaining the recent increase in income inequality in Western European countries. Regional integration is conceptualized as the construction of regional political economy through intensified political and economic interaction and exchange. It is argued that political integration increases inequality through welfare state retrenchment, while economic integration increases inequality by exposing labor to international competition but later decreases inequality as welfare states adopt social protections to compensate for this competition. These arguments are assessed with data from 12 Western European countries for the 1969-1999 period. Results from random—effects and fixed—effects models support these arguments. Also consistent with these arguments are the findings that the welfare state dampens the effects of political and economic integration, and that the effects of political integration weaken at higher levels of economic integration. This study suggests that European integration is an important factor in understanding income inequality in Western Europe.

Notes: