Abstract
The link between democracy and within-country income inequality remains an unresolved quest in the literature of political economy. To look into this debate, I propose exploring the implications of electoral systems, rather than political regimes, on income inequality. I surmise that proportional representation systems should be associated with lower income inequality than majoritarian or mixed systems. Further, I conjecture that the relationship between electoral systems and income inequality hinges on the de facto distribution of real political power, namely political equality. I use data on 85 countries covering the period 1960–2016 and specify models able to capture the persistence and mean reversion of income inequality. The estimates fail to significantly associate democracy with income inequality, and find other political institutions to significantly shape income inequality. The paper finds a robust association between more proportional systems and lower income inequality. However, this association depends on political equality. Changes towards proportional representation systems seem to lower income inequality at low and medium levels of political equality. Strikingly, instrumental variable estimates show that changes in electoral systems in political equal societies increases income inequality.
Highlights
Economic inequality has experienced a remarkable increase since the 1970s in virtually all Western democracies (Piketty 2014; Atkinson 2015)
This paper tests whether electoral systems are related with within-country income inequality, and whether this relationship hinges upon the distribution of political power across socio-economic groups of the population
The starting point for this paper was the observation of rising within-country income inequality in established democracies
Summary
Economic inequality has experienced a remarkable increase since the 1970s in virtually all Western democracies (Piketty 2014; Atkinson 2015). Democracy is associated with either increasing or decreasing income inequality, findings that vary depending on country and time coverage in the datasets, estimation techniques or measures of democracy (Krauss 2016) Along these lines, recent literature suggests that democracy in itself might not warrant institutional or economic improvements (Chong and Gradstein 2019; Wong 2021; Bahamonde and Trasberg 2021). The current paper empirically tests two main hypotheses It distinguishes countries on the basis of other de jure political features such as electoral systems— rather than political regimes (i.e. democracy)—to shed some light on the existing conflicting results in democracy-inequality literature. The paper hypothesises that the inequality impact of electoral systems depends on de facto distribution of real political power, namely political equality. In highly political equal societies, changes towards more proportional electoral systems can rise income inequality.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
