Does inequality affect outcomes? To answer, we use the microcosm of Olympic competitions by asking whether a country's level of inequality diminishes its performance. If it does, is it conditional on institutional factors? We argue that the ability of economically free societies to win medals will not be affected by inequality. In these societies, institutions generate incentives to invest in the talents of individuals at the bottom of the income distribution (potential athletes otherwise constrained in the ability to expend resources on training). These effects mitigate those of inequality. The incentives that promote investments in skills across the income distribution are weaker in unfree societies and they cannot mitigate the effects of inequality. Using the Olympics of 2016 in combination with the Economic Freedom data, we find that inequality only matters in determining medal numbers for unfree countries. We link these results to inequality and its effects on economic outcomes.
We test the history-augmented Solow model with respect to its predictions on the patterns of divergence and convergence between the nowadays industrialized countries of the OECD. We show that the dispersion of incomes increased after the Industrial Revolution, peaked during the Second World War, and decreased afterwards. This pattern is fully consistent with the transitional dynamics implied by the historyaugmented Solow model.
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