WHY DO SOCIETIES WITH HIGHER AVERAGE COGNITIVE ABILITY HAVE LOWER INCOME INEQUALITY? THE ROLE OF REDISTRIBUTIVE POLICIES

Abstract

SummaryPast studies suggest that, across nations, the average cognitive ability of a population is negatively associated with income inequality; societies with higher average cognitive ability tend to have lower levels of income inequality. However, it is not clearwhy. This paper proposes that social transfers from the wealthy to the poor may be a major mechanism by which some societies achieve lower income inequality than others, because more intelligent individuals may be more likely to have a preference for such transfers. Publicly available societal-level data were analysed in a series of multiple regression models. The empirical results in this study replicate the earlier finding that societies with higher cognitive ability have lower levels of income inequality, but the association isentirelymediated by social transfers. Social transfers therefore appear to be the primary mechanism by which societies with higher levels of cognitive ability achieve lower income inequality.