Long-run effects of democracy on income inequality in Latin America

I address the link between democracy and inequality in Latin America, analyzing whether the degree of democracy that birth cohorts experience during the course of their formative years is related to labor income dispersion later, in adulthood. For this, I measure inequality at the cohort level by using pseudo-panel data built from household surveys for fifteen Latin American countries (from circa 1995 to circa 2011) and measure democracy as the discounted cumulative value of the degree of democracy during the cohort’s formative years. I find that cohorts that have higher discounted cumulative values of the degree of democracy show lower income inequality. However, the effect of democracy on income dispersion is driven by those cohorts that benefited from the surge of democracies that came to exist during the second half of the twentieth century. I also present suggestive evidence that education is one mechanism explaining these results.