Inequality, Democracy, and Institutions: A Critical Review of Recent Research

Abstract

This paper surveys the theoretical and empirical literature on the effect of economic and political inequality on institutions. The current understanding suggests that unequal societies develop exploitative and inefficient institutions. Empirical research - which is scant, and has mainly concentrated at cross-national level - supports, to some extent, the existence of an inverse relationship between inequality and institutions, but more analysis is needed. Future empirical research should undertake country, state, and micro-level analysis, which are a necessary complement to aggregate level studies. The effect of inequality could also take place indirectly, through the influence of inequality on democratization.

Keywords: inequality, institutions, democracy

JEL Classification: O15, O17, D70