Does Democracy Reduce Economic Inequality? If so, how?
by Jeffrey F. Timmons. Reading for Tuesday, 6 May 2008.
Published: Friday, May 02, 2008
Democracy is frequently framed as a distributional game. Evidence supporting this possibility comes from the World Bank’s “high-quality” inequality dataset (Deinenger and Squire 1996). Using the updated and revised “high-quality” dataset (WIID, Version 2), this paper revisit those results. Using the same sample and nearly equivalent specifications as previous studies, we find no relationship between democracy/civil liberties and aggregate measures of inequality. We also examine theoretically relevant channels through which democracy might exert its influence, notably the labor market. While Rodrik’s (1999) results that democracies pay higher average wages can be affirmed, we find no evidence that democracy reduces interindustry wage dispersion in manufacturing. Whether and how democracy reduces inequality remain open questions.
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