Institutions, preferences and inequality in Turkey (2002-2009)

Rising income inequality across the world has received attention since the 1980s and it has followed the same pattern in the last decade (OECD, 2008). This has shifted interest to two important questions: what determines the rising income inequality and how can it be addressed? Much of this analysis focused on income distribution and the determinants of income distribution. However, there was also an increased interest in the microeconomic determinants of income inequality, particularly in relation to its level or changes, and an increased interest in the study of public policies regarding income inequality and individual preferences towards such policies. This dissertation will focus on the openness of the economy and the feasibility of redistribution, two important factors determining income inequality in Turkey, in chapters 2 and 3 respectively. Using Fields’s (2003) approach to inequality decomposition, chapter 2 explores the potential role of openness and different characteristics of individuals on changes in income inequality in Turkey between 2002 and 2009. We find evidence that the openness of the economy (measured as ratio of total trade to gross domestic product (GDP) and foreign direct investment (FDI) stock level) has a positive effect on the falling income inequality and is also an important determinant of the level of income inequality in the same period. Another important finding in this chapter is that productivity differences (gender, age and social status) are also significant factors in the falling/rising income inequality. Chapter 3 focuses on the effect of religion on preferences towards redistribution in Turkey, a predominantly Muslim democracy. We analyse the relation between redistribution preferences and its determinants through a mixture model, based on the assumption that there is important heterogeneity in the preferences and its determinants, including religion. In this chapter, we find that higher level of religiosity is associated with higher level of support for income redistribution through state intervention in the economy. Another significant result, consistent with our finding on the relation between religiosity level and redistribution preferences, is that secular individuals and those who place themselves in the Left are more likely to be more supportive of income redistribution. We also find that specific characteristics of individuals (age, education and skill level) are significant determinants of preferences towards redistribution