Democracy, economic growth and income inequality: Income inequality matters.

摘要

Can a developing country balance a stable democracy with a well-functioning market economy? Does economic growth come only at the expense of income equality and is increased poverty a necessary side effect of rapid growth? This dissertation examines the links between democracy, economic growth, and income inequality. I propose, and my results confirm, that both democratic freedoms and mare equal distribution of income will simultaneously stimulate economic growth.; Using a simultaneous equations model, this dissertation adds to the existing models by rigorously testing, across a large sample of countries, democratization, economic growth, and income inequality as they affect each other simultaneously.; My findings show that democracy and income inequality have a mutually reinforcing negative effect on each other. Also my findings indicate that democracy and economic growth have a mutually reinforcing positive effect on each other. Moreover, democracy stimulates growth, not only on its own accord, but also by working indirectly through income inequality. Democracy reduces income inequality and a more equal distribution of income has a positive and significant effect on growth. Growth, according to my results creates more income inequality.; This research has powerful real-world implications. The lessons to be learned are, firstly, a country that wishes to democratize must simultaneously take measures to reduce income inequality, or else inequality---with its stifling effect on growth---will neutralize the benefits of growth on democratic consolidation. In order to offset the negative effect that growth has on distributional equality and the negative effect inequality has on growth, democratic governments need to take measures that simultaneously increase growth and decrease inequality.; Secondly, and most importantly, democracy and distributional equality are both good for growth. Moreover, more equality in the distribution of wealth is good for both democracy and growth. Therefore, because economic growth does not lead concurrently to an equal distribution of the spoils of an economic boom, governments must step in and take action, initiating policies that will lead to a more equal distribution of income. Only in taking such action can democracy become consolidated and economic growth become sustainable.