Democracy and Inequality: New Data and Exact Tests

Abstract: A central argument of much of the political economy literature is that competitive elections give greater incentives to governments to redistribute, but those incentives, and democratization itself, depend on the distribution of “market” income – income net of the redistributive effects of government fiscal policies. The absence of data on market income has made these arguments difficult to examine. This paper uses new data on income distribution in 59 countries, including 20 Latin American countries, that for the first time allows these questions to be examined precisely. Consistent with theory, the data indicate that democratization increases redistribution. Less clearly consistent, additional years of democracy have a stronger effect on redistribution than democratization itself. Inconsistent with the predictions of a number of recent studies of the role of the impact of inequality on democratization, we find no significant difference among stable democracies, stable autocracies and regime-changing countries in the pre-market distribution of income.