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Democracy and Income In-Equality: An Empirical Analysis

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  • Mark Gradstein
  • Branko Milanovic
  • Yvonne Ying

Abstract

While standard political economy theories suggest a moderating effect of democratization on income inequality, empirical literature has failed to uncover any such robust relationship. Here we take yet another look at this issue arguing first, that prevailing ideology may be an important determinant of inequality and, second, that the democratization effect “works through” ideology. In societies where equality is highly valued there is less of a distributional conflict across income groups, hence democratization may have only a negligible effect on inequality. On the other hand, in societies where equality is not valued as much, democratization reduces inequality through redistribution as the poor outvote the rich. Our cross-country empirical analysis, covering the period 1960-98 and 126 countries, confirms the hypothesis: ideology – as proxied by a country’s dominant religion – seems to be related to inequality. But in addition, in Judeo-Christian societies increased democratization appears to lead to lower inequality, while in Muslim and Confucian societies democratization has only an insignificant effect on inequality. We hypothesize that in the latter group of countries, desired level of inequality is reached through informal transfers, while in Judeo-Christian societies where family ties are weaker, desired outcome is achieved by political action.

Suggested Citation

  • Mark Gradstein & Branko Milanovic & Yvonne Ying, 2001. "Democracy and Income In-Equality: An Empirical Analysis," CESifo Working Paper Series 411, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_411
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    1. Hisako Kai & Shigeyuki Hamori, 2009. "Globalization, financial depth, and inequality in Sub-Saharan Africa," Economics Bulletin, AccessEcon, vol. 29(3), pages 2025-2037.
    2. Muhammad Shahbaz & Reza Sherafatian-Jahromi & Muhammad Nasir Malik & Muhammad Shahbaz Shabbir & Farooq Ahmed Jam, 2016. "Linkages between defense spending and income inequality in Iran," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(3), pages 1317-1332, May.
    3. Antonio Andres & Carlyn Ramlogan-Dobson, 2011. "Is Corruption Really Bad for Inequality? Evidence from Latin America," Journal of Development Studies, Taylor & Francis Journals, vol. 47(7), pages 959-976.
    4. Eric S. Lin & Hamid E. Ali, 2009. "Military Spending and Inequality: Panel Granger Causality Test," Journal of Peace Research, Peace Research Institute Oslo, vol. 46(5), pages 671-685, September.
    5. Branko Milanovic, 2005. "Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Surveys," World Bank Economic Review, World Bank Group, vol. 19(1), pages 21-44.
    6. Rasha Hashim Osman & Constantinos Alexiou & Persefoni Tsaliki, 2012. "The role of institutions in economic development: Evidence from 27 Sub-Saharan African countries," International Journal of Social Economics, Emerald Group Publishing, vol. 39(2), pages 142-160, January.
    7. Alberto Chong & Florencio Lopez-de-Silanes, 2004. "Privatización en México," Research Department Publications 4374, Inter-American Development Bank, Research Department.
    8. Balcazar Salazar,Carlos Felipe, 2015. "Long-run effects of democracy on income inequality : evidence from repeated cross-sections," Policy Research Working Paper Series 7153, The World Bank.
    9. Kinda, Romuald, 2010. "Democratic institutions and environmental quality: effects and transmission channels," MPRA Paper 27455, University Library of Munich, Germany.
    10. Milanovic, Branko & Hoff, Karla & Horowitz, Shale, 2008. "Political alternation as a restraint on investing in influence : evidence from the post-communist transition," Policy Research Working Paper Series 4747, The World Bank.
    11. César Calderón & Alberto Chong & Rodrigo O. Valdés, 2005. "Labor Market Regulations and Income Inequality: Evidence for a Panel of Countries," Central Banking, Analysis, and Economic Policies Book Series,in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.), Labor Markets and Institutions, edition 1, volume 8, chapter 7, pages 221-279 Central Bank of Chile.
    12. Fabrizio Carmignani, 2007. "Efficiency of Institutions, Political Stability and Income Dynamics," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(1), pages 6-30, February.
    13. Nikoloski, Zlatko, 2015. "Democracy and income inequality: revisiting the long and short-term relationship," LSE Research Online Documents on Economics 60562, London School of Economics and Political Science, LSE Library.
    14. Uwaifo Oyelere, Ruth, 2007. "Within and Between Gender Disparities in Income and Education Benefits from Democracy," IZA Discussion Papers 3221, Institute for the Study of Labor (IZA).
    15. Martin Rama, 2002. "Mondialisation, inégalités et politiques de l'emploi," Revue d’économie du développement, De Boeck Université, vol. 10(1), pages 43-83.
    16. Shen, Yan & Yao, Yang, 2008. "Does grassroots democracy reduce income inequality in China?," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2182-2198, October.
    17. Anneli Kaasa, 2005. "Factors Of Income Inequality And Their Influence Mechanisms: A Theoretical Overview," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 40, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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    Keywords

    Inequality; democracy; religion;

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