Does Democratization Reduce Inequality? A Critical Appraisal of the Middle-Ground Theory

Arguing against prior theories that democratization has no impact on income inequality, Dorsch and Maarek (2019) contend in an APSR article that democratization causes extreme income distributions to move towards a "middle ground," reducing inequality in highly unequal autocracies while increasing inequality in relatively egalitarian ones. Central to the study’s evidence is an instrumental variable strategy that leverages the regional share of democracies, and its interaction with initial inequality levels, to identify both the effect of democratization and the democracy–inequality interaction. We provide a critical replication of this study, making two central contributions. First, we show that the generated instrument violates the exclusion restriction and, second, even when properly constructed, the same linear function cannot be used to identify two causal effects. We then demonstrate how the same source of exogenous variation can be used to identify multiple causal effects using a generalized additive model, with non-linearities in the first stages serving as additional instruments. Across all specifications, the data do not support the middle‑ground theory proposed by the authors: neither democracy nor its interaction with initial inequality has a statistically significant effect on the Gini coefficient. Our findings are consistent with an extensive literature in economics and political science that has struggled to uncover a systematic democracy–inequality link. The replication method we employ offers a practical tool for other studies in contexts where valid instruments are scarce or the exclusion restriction is difficult to satisfy.