Income and the (eventual) rise of democracy

We investigate the relationship between income and democracy. A theoretical framework is developed where citizens derive utility from both material goods and democratic rights. Citizens can devote their time either to creating material benefits or to political activism (that improves democratic liberties). We demonstrate a non-monotonic relationship between income and democracy. In poor countries—where the elasticity of the marginal rate of substitution between material good and democratic rights is low—exogenous increases in income (wages) lead to a reduction in the level of democratic liberties: as wages increase, citizens are increasingly willing to give up time otherwise devoted to activism to work more. In wealthy countries, the opposite is true: democratic liberties increase with income. Our country fixed-effects and GMM estimations on cross-country data over 1960- 2010 empirically validate this non-monotonic prediction, thereby corroborating our theory above-and-beyond the effect of institutions and culture.