Will the decline of democracy exacerbate income inequality?
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2021-07-08
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en
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Abstract
Since 2014 the global score of democracy has been in a rapid decline. Although democracy is
mostly praised for its equalizing effect on income a scientific consensus has not yet been
reached. This paper maps the relationship between democracy and income inequality in detail
to explain this controversy and to answer what possible effect a decline in democracy has on
income inequality. The paper of Lee (2005) has been used to further develop two implicitly
mentioned theoretical mechanisms that could explain the indirect equalizing effect of
democracy via government size. A democracy might have an indirect equalizing effect because
of (i) a low level of corruption or because of (ii) the shift of political power to the majority of
people who have redistribution demands. These demands can subsequently only be effectively
executed by experienced democracies. However, there is only weak evidence for both
theoretical mechanisms. After correcting for an inaccurate assumption in theoretical
mechanism two, the cultural variable Individualism has been added to the analysis. Concluding
that a shift of political power, due to democracy, can only cause an indirect equaling effect if a
country is willing to conduct additional distribution, which is captured by a low score of
Individualism.
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Faculteit der Managementwetenschappen