Differences in institutional quality across euro area countries: Which factors contribute most to inequality?

Abstract

In recent years the differences in the institutional structure across the Euro area countries have become a cause of concern, both for some individual Member States and for the functioning of the Economic and Monetary Union (EMU). In this paper we analyse the inequality in institutional quality across Euro area countries and estimate which factors of public and private institutions contribute most to overall inequality in institutional quality. To this end, we consider the institutional indicators of the Global Competitiveness Index (GCI) from the World Economic Forum (WEF) during the period 2007-2017, with the most disaggregated data possible. Our findings support the call for structural reforms, particularly in the areas of ethics and corruption (in the public sphere but also in the business environment), undue influence on the judiciary and government decisions, and protection of property rights, as the major sources of inequality in institutional quality.

Keywords

• Institutional quality
• Inequality
• Euro area