Democracy and Income Inequality: An Empirical Analysis

46 Pages Posted: 12 Jan 2001

See all articles by Branko Milanovic

Branko Milanovic

World Bank - Development Research Group (DECRG); University of Maryland

Mark Gradstein

Ben-Gurion University of the Negev - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); World Bank - Development Research Group (DECRG)

Yvonne Ying

World Bank - Research Department

Date Written: January 2001

Abstract

Ideology, as proxied by a country's dominant religion, seems to be related to inequality. In Judeo-Christian societies increased democratization appears to lead to lower inequality; in Muslim and Confucian societies it has an insignificant effect. One reason for this difference may be that Muslim and Confucian societies rely on informal transfers to reach the desired level of inequality, while Judeo-Christian societies, where family ties are weaker, use political action.

Standard political economy theories suggest that democratization has a moderating effect on income inequality. But the empirical literature has failed to uncover any such robust relationship. Gradstein, Milanovic, and Ying take another look at the issue.

The authors argue that prevailing ideology may be an important determinant of inequality and that the democratization effect "works through" ideology. In societies that value equality highly there is less distributional conflict among income groups, so democratization may have only a negligible effect on inequality. But in societies that value equality less, democratization reduces inequality through redistribution as the poor outvote the rich.

The authors' cross-country empirical analysis, covering 126 countries in 1960-98, confirms the hypothesis: ideology, as proxied by a country's dominant religion, seems to be related to inequality. In addition, while in Judeo-Christian societies increased democratization appears to lead to lower inequality, in Muslim and Confucian societies it has an insignificant effect. The authors hypothesize that Muslim and Confucian societies rely on informal transfers to reach the desired level of inequality, while Judeo-Christian societies, where family ties are weaker, use political action.

This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to study inequality and income redistribution. The study was funded by the Bank's Research Support Budget under the research projects "Democracy, Redistribution, and Inequality" (RPO 683-01) and "Deriving World Income Distribution in 1988 and 1993" (RPO 683-68). The authors may be contacted at bgumail.bgu.ac.il, bmilanovic@worldbank.org, or yvonne_ying@hotmail.com.

JEL Classification: D31

Suggested Citation

Milanovic, Branko and Gradstein, Mark and Ying, Yvonne, Democracy and Income Inequality: An Empirical Analysis (January 2001). CESifo Working Paper Series No. 411; World Bank Research Working Paper No. 2561. Available at SSRN: https://ssrn.com/abstract=253368 or http://dx.doi.org/10.2139/ssrn.253368

Branko Milanovic (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
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Washington, DC 20433
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202-473-6968 (Phone)
202-522-1153 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/bmilanovic

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Mark Gradstein

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+97 2 8647 2288 (Phone)
+97 2 8647 2941 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Yvonne Ying

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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