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Democracy, Redistribution and Inequality

MIT Department of Economics Working Paper No. 13-24

87 Pages Posted: 14 Dec 2013  

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Suresh Naidu

Columbia University

Pascual Restrepo

Boston University - Department of Economics

James A. Robinson

Harvard University - Department of Government; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: October 30, 2013

Abstract

In this paper we revisit the relationship between democracy, redistribution and inequality. We first explain the theoretical reasons why democracy is expected to increase redistribution and reduce inequality, and why this expectation may fail to be realized when democracy is captured by the richer segments of the population; when it caters to the preferences of the middle class; or when it opens up disequalizing opportunities to segments of the population previously excluded from such activities, thus exacerbating inequality among a large part of the population. We then survey the existing empirical literature, which is both voluminous and full of contradictory results. We provide new and systematic reduced-form evidence on the dynamic impact of democracy on various outcomes. Our findings indicate that there is a significant and robust effect of democracy on tax revenues as a fraction of GDP, but no robust impact on inequality. We also find that democracy is associated with an increase in secondary schooling and a more rapid structural transformation. Finally, we provide some evidence suggesting that inequality tends to increase after democratization when the economy has already undergone significant structural transformation, when land inequality is high, and when the gap between the middle class and the poor is small. All of these are broadly consistent with a view that is different from the traditional median voter model of democratic redistribution: democracy does not lead to a uniform decline in post-tax inequality, but can result in changes in fiscal redistribution and economic structure that have ambiguous effects on inequality.

Keywords: democracy, education, inequality, political development, redistribution, structural transformation

JEL Classification: P16, O10

Suggested Citation

Acemoglu, Daron and Naidu, Suresh and Restrepo, Pascual and Robinson, James A., Democracy, Redistribution and Inequality (October 30, 2013). MIT Department of Economics Working Paper No. 13-24. Available at SSRN: https://ssrn.com/abstract=2367088 or http://dx.doi.org/10.2139/ssrn.2367088

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Suresh Naidu

Columbia University ( email )

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Pascual Restrepo

Boston University - Department of Economics ( email )

James A. Robinson

Harvard University - Department of Government ( email )

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United States
617-496-2839 (Phone)
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Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
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United Kingdom

National Bureau of Economic Research (NBER) ( email )

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