Law and Inequality: A Comparative Approach to the Distributive Implications of Legal Systems

Abstract: The literature on legal traditions focuses on the comparative macroeconomic effects of legal systems concentrating on efficiency alone and leaving distributive issues to taxation. However, the legal structure of a country also conditions the primary distribution of income and can have a comparative advantage as a distributive tool relative to taxation. We use cross-section and panel estimates to show that the level of income inequality in a country is indeed correlated with its legal system. By several measures of inequality, on average, common law countries are more unequal than civil law countries. We explain these results by the nature of the systems. The reduced regulation of common law countries limits their capacity to achieve social objectives such as combating income inequality.