DP4187 Inequality, Democracy and the Emergence of Institutions

Author(s): Mark Gradstein
Publication Date: January 2004
Keyword(s): democracy, inequality, property rights
JEL(s): D72, O11
Programme Areas: International Macroeconomics, Public Economics, Transition Economics, Institutions and Economic Performance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4187

This Paper considers the emergence of institutions as a political outcome, arguing that the support for protection of private property rights is stronger the higher is the economy's aggregate income and the more equal its distribution. When these conditions initially hold, the politically influential rich elite may prefer to relinquish its power through democratization in order to commit future policy-makers to the enforcement of private property rights, thus ensuring larger investment and growth. In a very unequal economy, however, this growth-enhancing democratization will not take place. These conclusions are shown to be consistent with the existing historical and cross-country evidence.