Liberty, Equality, Democracy? The supposed relationship between democratic institutions and income inequality

Abstract

The democratic process was always praised for it supposedly reduces inequalities. Indeed, the voice given to citizens in the democratic decision-making process, enables the less favoured part of the population to have the political system addressing their demands. Among them, reducing inequalities inherent to any given system is often to be found in politicians’ electoral pledges. The democratisation of an unprecedented number of countries in recent history however, failed to produce expected results in terms of inequality reduction. Indeed, the United Nations find that that globally, income inequality rose steadily in the last two decades, whereas democracy has never been so widespread. This paper thus questions the pre- supposed existence of the role of democratic institutions on income inequalities reduction. A simple panel regression alone, does not seem to detect such an effect, however. The paper thus turns to possible causes of this insignificance, such as the endogeneity of democracy, and the reverse effect in the extreme cases. The resulting evidences do not provide for a consistent pattern either, it is argued. Hence, as a final specification, the sample is divided into regions with common or close history; regional patterns are uncovered, which suggests that although there is no systematic effect, when in specific conditions, the relationship may exist.