Income inequality, Redistribution, and Democracy

Abstract

Many economists, and more generally institutions are concerned with the development of poor countries. Not only poverty, but also income inequality can have perverse consequences on the economic, political, and social stability of a country. In order to get more insight into this topic the main research question was: How is income inequality determined by regime type and is there a difference in the way democracies and dictatorships redistribute income? We can find three individual processes in democratization: democratization of the recruitment of the executive, the degree of independence of the executive authority, and the degree of political competition and opposition. The democratization of executive recruitment leads to a linear, negative effect on inequality, while the degree of political competition leads to a linear, positive effect on inequality. If a (post)communist country experiences an increase in the independence of executive authority, inequality increases to a lesser degree than for a non-communist country. Additionally, the level of inequality starts to fall sooner for a (post)communist country as compared with a non-communist country when the degree of independence increases. It is concluded that democracy not only leads to more inequality, it also leads to less redistribution.