Institutional Quality and Income Inequality. Quantile Regression Analysis of Regional Italian Data

ABSTRACT The aim of this study is to determine whether the quality of Italian institutions is a significant factor in economic inequality and whether the result contributes to an explanation of the North‐South divide in Italy. To test our hypothesis, we use a quantile regression on regional data for Italy from 2004 to 2019. The results suggest that higher institutional quality plays a crucial role in reducing income inequality. This is particularly true in situations where income inequality is very high. Our empirical results were confirmed by a series of robustness checks, which also have important policy implications.