Democracy, Redistribution and Inequality
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 s...
| Main Authors: | , , , |
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| Format: | Working Paper |
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Cambridge, MA: Department of Economics, Massachusetts Institute of Technology
2014
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| Online Access: | http://hdl.handle.net/1721.1/84473 |
| _version_ | 1826217635258302464 |
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| author | Acemoglu, Daron Naidu, Suresh Restrepo, Pascual Robinson, James A. |
| author_facet | Acemoglu, Daron Naidu, Suresh Restrepo, Pascual Robinson, James A. |
| author_sort | Acemoglu, Daron |
| collection | MIT |
| description | 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. |
| first_indexed | 2024-09-23T17:06:29Z |
| format | Working Paper |
| id | mit-1721.1/84473 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T17:06:29Z |
| publishDate | 2014 |
| publisher | Cambridge, MA: Department of Economics, Massachusetts Institute of Technology |
| record_format | dspace |
| spelling | mit-1721.1/844732019-04-11T11:01:51Z Democracy, Redistribution and Inequality Acemoglu, Daron Naidu, Suresh Restrepo, Pascual Robinson, James A. democracy, education, inequality, poiltical develo9pment, redistribution, structural transformation 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. ∗Prepared for the Handbook of Income Distribution edited by Anthony Atkinson and François Bourguignon. We are grateful to the editors for their detailed comments on an earlier draft and to participants in the Handbook conference in Paris, particularly to our discussant José-Víctor Ríos-Rull. 2014-01-23T23:59:08Z 2014-01-23T23:59:08Z 2013-10-30 Working Paper http://hdl.handle.net/1721.1/84473 Working paper, Massachusetts Institute of Technology, Dept. of Economics;13-24 application/pdf Cambridge, MA: Department of Economics, Massachusetts Institute of Technology |
| spellingShingle | democracy, education, inequality, poiltical develo9pment, redistribution, structural transformation Acemoglu, Daron Naidu, Suresh Restrepo, Pascual Robinson, James A. Democracy, Redistribution and Inequality |
| title | Democracy, Redistribution and Inequality |
| title_full | Democracy, Redistribution and Inequality |
| title_fullStr | Democracy, Redistribution and Inequality |
| title_full_unstemmed | Democracy, Redistribution and Inequality |
| title_short | Democracy, Redistribution and Inequality |
| title_sort | democracy redistribution and inequality |
| topic | democracy, education, inequality, poiltical develo9pment, redistribution, structural transformation |
| url | http://hdl.handle.net/1721.1/84473 |
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