The Threat of Communism during the Cold War: A Constraint to Income Inequality?

Did the threat of communism influence income distribution in developed capitalist economies during the Cold War? This article addresses this question by testing whether income inequality in OECD countries was related to events linked to the spread of communism—revolutions and Soviet interventions—around the world. We argue that the threat of the spread of communism acted as an incentive for the elites and governments to keep economic inequality low. This article provides an empirical contribution to the recent literature on inequality, which highlights the role of domestic institutions but ignores the role of the Cold War in redistributing income. We find a robust relationship between income inequality and the distance to communist events. The results, reinforced by cases studied, suggest that the spread of communism fostered income redistribution deals between domestic elites and workers. Finally, we show that these effects were reinforced by strong unions and the presence of strong communist parties.