IDEAS home Printed from https://ideas.repec.org/a/bla/scandj/v123y2021i1p295-326.html
   My bibliography  Save this article

Income Shocks, Inequality, and Democracy

Author

Listed:
  • Rainer Kotschy
  • Uwe Sunde

Abstract

In this paper, motivated by contradictory evidence on the effect of income on democracy, we investigate the hypothesis that it is income shocks – major income fluctuations relative to the trend – rather than marginal year‐on‐year variation in income levels that lead to non‐trivial changes in the quality of political institutions. Empirical results provide support for this hypothesis, and show how income inequality plays a crucial role in the effects of economic shocks on democracy. In particular, negative income shocks reveal a positive effect on democracy in countries with high inequality, and vice versa.

Suggested Citation

  • Rainer Kotschy & Uwe Sunde, 2021. "Income Shocks, Inequality, and Democracy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 295-326, January.
    • Handle: RePEc:bla:scandj:v:123:y:2021:i:1:p:295-326
    DOI: 10.1111/sjoe.12398
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/sjoe.12398
    Download Restriction: no
    File URL: https://libkey.io/10.1111/sjoe.12398?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kotschy, Rainer & Sunde, Uwe, 2017. "Democracy, inequality, and institutional quality," Munich Reprints in Economics 55057, University of Munich, Department of Economics.
    2. Markus Brückner & Antonio Ciccone & Andrea Tesei, 2012. "Oil Price Shocks, Income, and Democracy," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 389-399, May.
    3. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    4. Aidt, Toke S. & Jensen, Peter S., 2014. "Workers of the world, unite! Franchise extensions and the threat of revolution in Europe, 1820–1938," European Economic Review, Elsevier, vol. 72(C), pages 52-75.
    5. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2019. "Democracy Does Cause Growth," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 47-100.
    6. Kotschy, Rainer & Sunde, Uwe, 2017. "Democracy, inequality, and institutional quality," European Economic Review, Elsevier, vol. 91(C), pages 209-228.
    7. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    8. Toke S. Aidt & Raphaël Franck, 2015. "Democratization Under the Threat of Revolution: Evidence From the Great Reform Act of 1832," Econometrica, Econometric Society, vol. 83, pages 505-547, March.
    9. Fabrice Murtin & Romain Wacziarg, 2014. "The democratic transition," Journal of Economic Growth, Springer, vol. 19(2), pages 141-181, June.
    10. Daron Acemoglu & James A. Robinson, 2001. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September.
    11. Benhabib, Jess & Corvalan, Alejandro & Spiegel, Mark M., 2013. "Income and democracy: Evidence from nonlinear estimations," Economics Letters, Elsevier, vol. 118(3), pages 489-492.
    12. Przeworski, Adam, 2009. "Conquered or Granted? A History of Suffrage Extensions," British Journal of Political Science, Cambridge University Press, vol. 39(2), pages 291-321, April.
    13. Daron Acemoglu & James A. Robinson, 2000. "Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1167-1199.
    14. Toke S. Aidt & Gabriel Leon, 2014. "The Democratic Window of Opportunity: Evidence from Riots in sub-Saharan Africa," Cambridge Working Papers in Economics 1417, Faculty of Economics, University of Cambridge.
    15. Voigt, Stefan, 2013. "How (Not) to measure institutions," Journal of Institutional Economics, Cambridge University Press, vol. 9(1), pages 1-26, March.
    16. Moral-Benito, Enrique & Bartolucci, Cristian, 2012. "Income and democracy: Revisiting the evidence," Economics Letters, Elsevier, vol. 117(3), pages 844-847.
    17. World Bank, 2017. "World Development Indicators 2017," World Bank Publications - Books, The World Bank Group, number 26447.
    18. Markus Brückner & Antonio Ciccone, 2011. "Rain and the Democratic Window of Opportunity," Econometrica, Econometric Society, vol. 79(3), pages 923-947, May.
    19. Acemoglu, Daron & Johnson, Simon & Robinson, James A. & Yared, Pierre, 2009. "Reevaluating the modernization hypothesis," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1043-1058, November.
    20. Heid, Benedikt & Langer, Julian & Larch, Mario, 2012. "Income and democracy: Evidence from system GMM estimates," Economics Letters, Elsevier, vol. 116(2), pages 166-169.
    21. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," LIS Working papers 496, LIS Cross-National Data Center in Luxembourg.
    22. Trebesch, Christoph & Zabel, Michael, 2017. "The output costs of hard and soft sovereign default," European Economic Review, Elsevier, vol. 92(C), pages 416-432.
    23. Cervellati, Matteo & Fortunato, Piergiuseppe & Sunde, Uwe, 2014. "Violence during democratization and the quality of democratic institutions," European Economic Review, Elsevier, vol. 66(C), pages 226-247.
    24. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    25. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    26. repec:hal:spmain:info:hdl:2441/5m0od0o9jn9pqbdmos7fpt28hg is not listed on IDEAS
    27. Alessandro Lizzeri & Nicola Persico, 2004. "Why did the Elites Extend the Suffrage? Democracy and the Scope of Government, with an Application to Britain's "Age of Reform"," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 707-765.
    28. Ragnhild Nordås & Christian Davenport, 2013. "Fight the Youth: Youth Bulges and State Repression," American Journal of Political Science, John Wiley & Sons, vol. 57(4), pages 926-940, October.
    29. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    30. Boix, Carles, 2011. "Democracy, Development, and the International System," American Political Science Review, Cambridge University Press, vol. 105(4), pages 809-828, November.
    31. Eric Chaney, 2013. "Revolt on the Nile: Economic Shocks, Religion, and Political Power," Econometrica, Econometric Society, vol. 81(5), pages 2033-2053, September.
    32. Raphaël Franck, 2016. "The Political Consequences of Income Shocks: Explaining the Consolidation of Democracy in France," The Review of Economics and Statistics, MIT Press, vol. 98(1), pages 57-82, March.
    33. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 158-183, December.
    34. Enderlein, Henrik & Trebesch, Christoph & von Daniels, Laura, 2012. "Sovereign debt disputes: A database on government coerciveness during debt crises," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 250-266.
    35. Lipset, Seymour Martin, 1959. "Some Social Requisites of Democracy: Economic Development and Political Legitimacy1," American Political Science Review, Cambridge University Press, vol. 53(1), pages 69-105, March.
    36. Voigt, Stefan, 2013. "How (not) to measure institutions: a reply to Robinson and Shirley," Journal of Institutional Economics, Cambridge University Press, vol. 9(1), pages 35-37, March.
    37. James D. Hamilton, 2018. "Why You Should Never Use the Hodrick-Prescott Filter," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 831-843, December.
    38. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    39. Aidt, T.S. & Jensen, P.S., 2012. "From Open to Secret Ballot: Vote Buying and Modernization," Cambridge Working Papers in Economics 1221, Faculty of Economics, University of Cambridge.
    40. Frederick Solt, 2009. "Standardizing the World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 90(2), pages 231-242, June.
    41. Paul Maarek & Michael T. Borsch, 2014. "Recessions, Inequality, and Democratization," THEMA Working Papers 2014-19, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    42. Toke S. Aidt & Gabriel Leon, 2016. "The Democratic Window of Opportunity," Journal of Conflict Resolution, Peace Science Society (International), vol. 60(4), pages 694-717, June.
    43. Che, Yi & Lu, Yi & Tao, Zhigang & Wang, Peng, 2013. "The impact of income on democracy revisited," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 159-169.
    44. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
    45. Matteo Cervellati & Uwe Sunde, 2014. "Civil Conflict, Democratization, and Growth: Violent Democratization as Critical Juncture," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(2), pages 482-505, April.
    46. Frederick Solt, 2016. "The Standardized World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 97(5), pages 1267-1281, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kai-Ping Huang, 2023. "Support for Democracy in the Age of Rising Inequality and Population Aging," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 166(1), pages 27-51, February.
    2. Dario Debowicz & Alex Dickson & Ian A. MacKenzie & Petros G. Sekeris, 2023. "Income and the (eventual) rise of democracy," Discussion Papers Series 661, School of Economics, University of Queensland, Australia.
    3. Andi Faisal Anwar & Angelina Putri Asnun & Abdul Wahab, 2021. "Measuring the Impact of Inclusive Economic Growth; Empirical Study of SDGs in Indonesia," Technium Social Sciences Journal, Technium Science, vol. 25(1), pages 192-218, November.
    4. Michael A. Nelson & Rajeev K. Goel, 2023. "Spillovers from gender equality onto economic equality: Evidence from 162 nations," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(6), pages 1365-1388, August.
    5. Halliki Kreinin & Ernest Aigner, 2022. "From “Decent work and economic growth” to “Sustainable work and economic degrowth”: a new framework for SDG 8," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(2), pages 281-311, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marino, Maria & Donni, Paolo Li & Bavetta, Sebastiano & Cellini, Marco, 2020. "The democratization process: An empirical appraisal of the role of political protest," European Journal of Political Economy, Elsevier, vol. 63(C).
    2. Kotschy, Rainer & Sunde, Uwe, 2017. "Democracy, inequality, and institutional quality," European Economic Review, Elsevier, vol. 91(C), pages 209-228.
    3. Dorsch, Michael T. & Maarek, Paul, 2020. "Economic downturns, inequality, and democratic improvements," European Journal of Political Economy, Elsevier, vol. 62(C).
    4. Dario Debowicz & Alex Dickson & Ian A. MacKenzie & Petros G. Sekeris, 2023. "Income and the (eventual) rise of democracy," Discussion Papers Series 661, School of Economics, University of Queensland, Australia.
    5. Roland Hodler, 2018. "The Political Economics Of The Arab Spring," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 821-836, April.
    6. Stephen L. Parente & Luis Felipe Sáenz & Anna Seim, 2022. "Income, education and democracy," Journal of Economic Growth, Springer, vol. 27(2), pages 193-233, June.
    7. Gründler, Klaus & Krieger, Tommy, 2016. "Democracy and growth: Evidence from a machine learning indicator," European Journal of Political Economy, Elsevier, vol. 45(S), pages 85-107.
    8. Lin, Faqin & Sim, Nicholas C.S., 2014. "Baltic Dry Index and the democratic window of opportunity," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 143-159.
    9. Aidt, Toke S. & Albornoz, Facundo & Gassebner, Martin, 2018. "The golden hello and political transitions," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 157-173.
    10. Aidt, Toke S. & Jensen, Peter S., 2014. "Workers of the world, unite! Franchise extensions and the threat of revolution in Europe, 1820–1938," European Economic Review, Elsevier, vol. 72(C), pages 52-75.
    11. Tian, Jilin & Sim, Nicholas & Yan, Wenshou & Li, Yanyun, 2020. "Trade uncertainty, income, and democracy," Economic Modelling, Elsevier, vol. 90(C), pages 21-31.
    12. Hyungmin Park, 2024. "Theory of developmental dictatorship," Discussion Papers 2024-10, Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP).
    13. BenYishay, Ariel & Betancourt, Roger, 2014. "Unbundling democracy: Political rights and civil liberties," Journal of Comparative Economics, Elsevier, vol. 42(3), pages 552-568.
    14. Paul Maarek & Michael T. Borsch, 2014. "Recessions, Inequality, and Democratization," THEMA Working Papers 2014-19, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    15. Antonis Adam & Kostas Karanatsis, 2019. "Sovereign Defaults and Democracy," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(1), pages 36-62, March.
    16. Méon, Pierre-Guillaume & Sekkat, Khalid, 2022. "A time to throw stones, a time to reap: how long does it take for democratic transitions to improve institutional outcomes?," Journal of Institutional Economics, Cambridge University Press, vol. 18(3), pages 429-443, June.
    17. Campante, Filipe R. & Chor, Davin, 2014. "“The people want the fall of the regime”: Schooling, political protest, and the economy," Journal of Comparative Economics, Elsevier, vol. 42(3), pages 495-517.
    18. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2019. "Democracy Does Cause Growth," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 47-100.
    19. Pantelis Kammas & Vassilis Sarantides, 2016. "Fiscal redistribution around elections when democracy is not “the only game in town”," Public Choice, Springer, vol. 168(3), pages 279-311, September.
    20. Kammas, Pantelis & Sarantides, Vassilis, 2019. "Do dictatorships redistribute more?," Journal of Comparative Economics, Elsevier, vol. 47(1), pages 176-195.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:scandj:v:123:y:2021:i:1:p:295-326. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.