Democracy, inequality, and institutional quality

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 significan...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Kotschy, Rainer, Sunde, Uwe
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2017
Subjects
Democracy
Inequality
Quality
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Summary: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.