Does Inequality Lead to Wars? An Empirical Analysis Bachelor’s Thesis A D a.v.demin.hse@gmail.com Supervisor: A Z Consultant: E A National Research University Higher School of Economics (Moscow) May 31, 2018 Moscow
Introduction Outline 1 Introduction 2 Existing research 3 Formal Model 4 Data Analysis 5 Conclusion Alexander Demin Does Inequality Lead to Wars? 1 / 34
Introduction Motivation Intuition Alexander Demin Does Inequality Lead to Wars? 2 / 34 The decay of inter-state wars and the spread of civil wars are studied separately – significant gap Unprecedented increase of economic inequality prompts scholars to re-evaluate its effects on domestic economic and political development New mechanisms of accountability considerably alter the link between inequality and war decision
Introduction Motivation Intuition Alexander Demin Does Inequality Lead to Wars? 2 / 34 The decay of inter-state wars and the spread of civil wars are studied separately – significant gap Unprecedented increase of economic inequality prompts scholars to re-evaluate its effects on domestic economic and political development New mechanisms of accountability considerably alter the link between inequality and war decision
Introduction Motivation Intuition Alexander Demin Does Inequality Lead to Wars? 2 / 34 The decay of inter-state wars and the spread of civil wars are studied separately – significant gap Unprecedented increase of economic inequality prompts scholars to re-evaluate its effects on domestic economic and political development New mechanisms of accountability considerably alter the link between inequality and war decision
Introduction Problem and Research Questions Introduction Problem Alexander Demin Does Inequality Lead to Wars? 5 / 34 Problem : the interconnection between economic inequality and decision to wage an interstate war in various political regimes Research questions : How does economic inequality affect a state’s resolve to fight another state in a given period of time? How does accountability change the direction of this effect? Subject matter : the decision-making mechanisms in political systems with different regimes in the context of war decisions.
Introduction 1 Does Inequality Lead to Wars? Alexander Demin 3 2 Problem and Research Questions 6 / 34 Objective and Research Tasks Introduction The objective of the research is the apprehension of precise microeconomic mechanisms, through which inequality influences war-proneness of states. Main research tasks : search for the already described mechanisms in the recent literature develop a formal theoretical explanation of inequality, regime, and war connection test theoretically driven hypotheses on the available data
Introduction Methodology Does Inequality Lead to Wars? Alexander Demin 5 4 3 2 1 Methodology and Methods 7 / 34 Methodology: rational choice theory. Methods : Formal (game-theoretic) modeling Pooled, fixed effects, random effects panel LPM ang Logit models Dynamic multilevel Logit (ML and Bayesian estimation) Pooled 2SLS LPM and Probit Instrumental variable iterative GMM estimation
Existing research Outline 1 Introduction 2 Existing research 3 Formal Model 4 Data Analysis 5 Conclusion Alexander Demin Does Inequality Lead to Wars? 8 / 34
Existing research Basic Concepts Building Blocks Alexander Demin Does Inequality Lead to Wars? 9 / 34 Wars can be defined “as sustained, coordinated violence between political organizations” (J. Levy and Thompson, 2010, p.5) Economic inequality is an overall deviation from absolutely equal distribution of economic goods (mind multiple ideas of “equality”) (Cowell, 2011) Institutions as stable agents’ Nash-equilibrium strategies profiles (Hall and Taylor, 1996; Riker, 1980) Political regime is defined as an institutional arrangement for arriving at political decisions (Schumpeter, 1994)
Existing research Economic Inequality, Political Regime, and Wars Does Inequality Lead to Wars? Alexander Demin 10 / 34 International Wars, Destabilization, and Inequality Diversionary theory and audience costs : debate on simple explanations for complex war decisions (Colaresi, 2007; Arena and Bak, 2015) After numerous arguments, economic inequality is said to be almost a definite impetus for internal destabilization (Alesina and Perotti, 1996; Boix, 2008; Baten and Mumme, 2013) Not only RATF: internal instability and interstate wars are linked through army size, inequality, and taxation (Acemoglu, Ticchi, and Vindigni, 2010) Inequality, wars, and accountability (Mattes and Rodríguez, 2014) in conjunction are heavily understudied formally and empirically (Grossman, 2002; Acemoglu and Robinson, 2004; Boix, 2008) 1. Predominance of structural explanations and negligence of micro-level incentives 2. Separation of rebellions and interstate war decisions
Existing research Economic Inequality, Political Regime, and Wars Does Inequality Lead to Wars? Alexander Demin 10 / 34 International Wars, Destabilization, and Inequality Diversionary theory and audience costs : debate on simple explanations for complex war decisions (Colaresi, 2007; Arena and Bak, 2015) After numerous arguments, economic inequality is said to be almost a definite impetus for internal destabilization (Alesina and Perotti, 1996; Boix, 2008; Baten and Mumme, 2013) Not only RATF: internal instability and interstate wars are linked through army size, inequality, and taxation (Acemoglu, Ticchi, and Vindigni, 2010) Inequality, wars, and accountability (Mattes and Rodríguez, 2014) in conjunction are heavily understudied formally and empirically (Grossman, 2002; Acemoglu and Robinson, 2004; Boix, 2008) 1. Predominance of structural explanations and negligence of micro-level incentives 2. Separation of rebellions and interstate war decisions
Existing research Economic Inequality, Political Regime, and Wars Does Inequality Lead to Wars? Alexander Demin 10 / 34 International Wars, Destabilization, and Inequality Diversionary theory and audience costs : debate on simple explanations for complex war decisions (Colaresi, 2007; Arena and Bak, 2015) After numerous arguments, economic inequality is said to be almost a definite impetus for internal destabilization (Alesina and Perotti, 1996; Boix, 2008; Baten and Mumme, 2013) Not only RATF: internal instability and interstate wars are linked through army size, inequality, and taxation (Acemoglu, Ticchi, and Vindigni, 2010) Inequality, wars, and accountability (Mattes and Rodríguez, 2014) in conjunction are heavily understudied formally and empirically (Grossman, 2002; Acemoglu and Robinson, 2004; Boix, 2008) 1. Predominance of structural explanations and negligence of micro-level incentives 2. Separation of rebellions and interstate war decisions
Existing research Economic Inequality, Political Regime, and Wars Does Inequality Lead to Wars? Alexander Demin 10 / 34 International Wars, Destabilization, and Inequality Diversionary theory and audience costs : debate on simple explanations for complex war decisions (Colaresi, 2007; Arena and Bak, 2015) After numerous arguments, economic inequality is said to be almost a definite impetus for internal destabilization (Alesina and Perotti, 1996; Boix, 2008; Baten and Mumme, 2013) Not only RATF: internal instability and interstate wars are linked through army size, inequality, and taxation (Acemoglu, Ticchi, and Vindigni, 2010) Inequality, wars, and accountability (Mattes and Rodríguez, 2014) in conjunction are heavily understudied formally and empirically (Grossman, 2002; Acemoglu and Robinson, 2004; Boix, 2008) 1. Predominance of structural explanations and negligence of micro-level incentives 2. Separation of rebellions and interstate war decisions
Existing research Economic Inequality, Political Regime, and Wars Does Inequality Lead to Wars? Alexander Demin 10 / 34 International Wars, Destabilization, and Inequality Diversionary theory and audience costs : debate on simple explanations for complex war decisions (Colaresi, 2007; Arena and Bak, 2015) After numerous arguments, economic inequality is said to be almost a definite impetus for internal destabilization (Alesina and Perotti, 1996; Boix, 2008; Baten and Mumme, 2013) Not only RATF: internal instability and interstate wars are linked through army size, inequality, and taxation (Acemoglu, Ticchi, and Vindigni, 2010) Inequality, wars, and accountability (Mattes and Rodríguez, 2014) in conjunction are heavily understudied formally and empirically (Grossman, 2002; Acemoglu and Robinson, 2004; Boix, 2008) 1. Predominance of structural explanations and negligence of micro-level incentives 2. Separation of rebellions and interstate war decisions
Formal Model Outline 1 Introduction 2 Existing research 3 Formal Model 4 Data Analysis 5 Conclusion Alexander Demin Does Inequality Lead to Wars? 11 / 34
Formal Model Setup Basic Logic Alexander Demin Does Inequality Lead to Wars? 12 / 34 The Rich decide whether to participate in war or not, considering the threat of rebellion This threat is contingent upon inequality level θ and costs for the Poor The decision to participate in war is not always credible because of accountability levels, so that the Rich will hold the promise only with probability p The Rich posses limited state coercive power α , which should be distributed between fighting external and internal enemies
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