Economic security, well functioning courts and a good government

Purpose - The purpose of this paper is to define economic security as a country's ability to redistribute incomes through a strong governance structure by practicing rule of law, eliminating corruption and a government that acts as a facilitator by formulating effective fiscal and monetary policy and regulation. Design/methodology/approach - The paper uses two stage instrumental analysis and carries out second order asymptotic tests to establish the validity of the instruments. Findings - The results suggest that courts that implement national laws effectively and punish corruption and a government that has balance budgets and investment friendly monetary policy ensures economic security by means of welfare friendly outcomes that favor the incomes of the poor and middle class. There is also evidence that redistribution takes place from rich to the poor. As a result, income and wage inequalities fall down. Originality/value - The paper adds to the literature on institutions by providing empirical evidence on the relationship between institutions and inequality.