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Democracy, inequality, and institutional quality

Rainer Kotschy and Uwe Sunde ()

European Economic Review, 2017, vol. 91, issue C, 209-228

Abstract: Contrary to a widespread perception, there exists little evidence on the question as to whether the beneficial effect of democracy on the quality of economic institutions is eroded by excessive inequality. This article provides evidence from a variety of panel data models that documents a significant interaction between political institutions and inequality in determining the quality of economic institutions. This suggests that democracy is not necessarily associated with high quality institutions. The empirical results suggest that excessively high levels of inequality erode institutional quality even in democracies, up to the point that democracies appear not to be able to implement good institutional environments if inequality is too high.

Keywords: Gini coefficient; Economic institutions; Democratic institutions; Panel data (search for similar items in EconPapers)
JEL-codes: P48 N4 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:eecrev:v:91:y:2017:i:c:p:209-228