ABSTRACT
Over the last two decades at least, income inequality within rich countries has increased. This chapter argues that income inequality increased because labour, which is the most important production factor for income, is seen by the supply-side approach as a cost to be compressed rather than as a fundamental part of aggregate demand to be expanded. It briefly reviews the literature regarding the relationship between globalisation and inequality. Globalisation is identified as a process of intensification of trade, capital mobility, finance and labour flexibility. The chapter analyses theoretically and empirically the relationship between financialisation and labour market legislation and its impact on inequality. An argument that needs to be taken into consideration is the impact of economic integration in terms of trade openness and foreign direct investment (FDI) on public finance. Finally, the chapter presents the author's econometric model to explain the determinants of inequality.
