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Democracy, Redistribution and Inequality

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  • Daron Acemoglu
  • Suresh Naidu
  • Pascual Restrepo
  • James A. Robinson

Abstract

In this paper we revisit the relationship between democracy, redistribution and inequality. We first explain the theoretical reasons why democracy is expected to increase redistribution and reduce inequality, and why this expectation may fail to be realized when democracy is captured by the richer segments of the population; when it caters to the preferences of the middle class; or when it opens up disequalizing opportunities to segments of the population previously excluded from such activities, thus exacerbating inequality among a large part of the population. We then survey the existing empirical literature, which is both voluminous and full of contradictory results. We provide new and systematic reduced-form evidence on the dynamic impact of democracy on various outcomes. Our findings indicate that there is a significant and robust effect of democracy on tax revenues as a fraction of GDP, but no robust impact on inequality. We also find that democracy is associated with an increase in secondary schooling and a more rapid structural transformation. Finally, we provide some evidence suggesting that inequality tends to increase after democratization when the economy has already undergone significant structural transformation, when land inequality is high, and when the gap between the middle class and the poor is small. All of these are broadly consistent with a view that is different from the traditional median voter model of democratic redistribution: democracy does not lead to a uniform decline in post-tax inequality, but can result in changes in fiscal redistribution and economic structure that have ambiguous effects on inequality.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19746.

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Date of creation: Dec 2013
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Handle: RePEc:nbr:nberwo:19746
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Find related papers by JEL classification:

  • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
  • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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Blog mentions

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  1. La démocratie est-elle un frein à la croissance ?
    by ? in D'un champ l'autre on 2014-03-27 23:26:00
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Cited by:

  1. Giacomo Corneo & Frank Neher, 2014. "Democratic Redistribution and Rule of the Majority," CESifo Working Paper Series 5112, CESifo Group Munich.
  2. Gilles Le Garrec, 2014. "Fairness, socialization and the cultural deman for redistribution," Sciences Po publications info:hdl:2441/13pk3v50kg9, Sciences Po.
  3. Paul Maarek & Renaud Bourlès & Michael T.Dorsch, 2014. "Income Redistribution and the Diversity of Consumer Goods," THEMA Working Papers 2014-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. Balcazar, 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.
  5. Jenkins, Stephen P., 2014. "World Income Inequality Databases: an assessment of WIID and SWIID," ISER Working Paper Series 2014-31, Institute for Social and Economic Research.
  6. Brockmeyer, Anne & Khatrouch, Maha & Raballand, Gael, 2015. "Public sector size and performance management : a case-study of post-revolution Tunisia," Policy Research Working Paper Series 7159, The World Bank.
  7. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2014. "Democracy Does Cause Growth," NBER Working Papers 20004, National Bureau of Economic Research, Inc.
  8. Chris Bidner & Patrick Francois & Francesco Trebbi, 2014. "A Theory of Minimalist Democracy," NBER Working Papers 20552, National Bureau of Economic Research, Inc.
  9. Casper Worm Hansen & Peter Sandholt Jensen & Lars Lønstrup, 2014. "The Fertility Transition in the US: Schooling or Income?," Economics Working Papers 2014-02, School of Economics and Management, University of Aarhus.
  10. N. Bagatella-Flores & M. Rodriguez-Achach & H. F. Coronel-Brizio & A. R. Hernandez-Montoya, 2014. "Wealth distribution of simple exchange models coupled with extremal dynamics," Papers 1407.7153, arXiv.org.

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