The distributional impact of privatization in developing countries: the role of democratic institutions

Focusing on developing countries which have recently experienced political and economic transitions, we study how income inequality is affected by privatization in the light of the democratization process. We find that privatization is negatively and significantly correlated with the inequality in the income distribution when, thanks to democratic institutions, the protection of the civil liberties and the guarantee of the political rights are widely ensured to all citizens. In fact, privatization generates revenue which well mature democracies can use to satisfy the redistributive pressures from the poor. Then, our evidence suggests an interesting policy implication for developing countries: only after having established mature representative political institutions, privatization can be implemented without producing a negative distributional impact.