Shomron Center for Economic Policy Research

In Search for an efficient Institutions

Inequality in Israel: Curse or Blessing?

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We were asked by our friends to prepare a few introductory notes on inequality in Israel and here is a first draft.

First and foremost we take into account a simple fact: Real Justice has nothing in common with redistribution and disgraceful ‘equity’, so we are discussing inequality as a purely economic problem.

There are two sources of inequality in focus in this short paper.

The first one is rooted in the level of risks accepted by business: if a significant part of entrepreneurs is ‘risk loving’ innovators who could both to lose big or, or to win big it inevitably results in relatively high inequality (as it is observable in the US economy – Acemoglu et al, 2012; Adam Smith). The second source of inequality is high barriers for entering markets protecting crony – capitalists. The latter is quite typical for some autocratic governments as well as for every economy plagued by socialist-like institutions (as a majority of Latin American countries and Israel with ‘socially oriented’ patron-client pyramids in broad use – De Soto, 2002).

We will be very pleased and grateful for the critics.

 

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