Empirical Evidence: Does Democracy Lower Inequality?

Does Democracy Lower Inequality? Student’s Name Institutional Affiliation Does Democracy Lower Inequality? Hypothetically, it is naturally expected that democracy can reduce inequality, but this might not be the case, especially in societies where democracy is controlled by the wealthier population. Acemoglu, Johnson and Robinson (2001) say that there are numerous factors that cause huge differences in per capital income in numerous countries, and this makes it difficult for democracy to contribute to lower levels of inequality. Existing empirical literature indicate that is democracy leads to contradictory outcome depending on the approach deployed in the study. The impact of democracy on inequality tend to differ in different countries and this depends on the level of economic development as well as the policies that are implemented by the government. Since there are many types of inequalities, this paper will largely concentrate on income inequality since it is the most prevalent. This paper argues that democracy does not lower inequality and provides empirical evidence to support this claim.  Any market system is always influenced by a larger political system. The extent of the impact of this political system on the market system is determined by the laws and policies imposed by the political regime. The laws and policies enacted by a political system are determined by the distribution of power and an aggregation of institutional and the preferences of the mobilized interests (Abad, 2013). In a free market, there will always be winners and losers and this implies that it is not possible for everyone to be equal. The most skilled population will always end up with more compared to those who lack any particular skill or the semi-skilled. Consequently, in an increasingly global economy, inequality is bound to be present as the most educated professionals will get all the well-paying white-collar jobs while the less educated and unskilled population do the less attractive living wage jobs. As this trend continues, the gap between the rich and the poor, which is the inequality level tends to widen. Therefore, democracy cannot lower inequality as it is only one of the factors impacting on inequality. The strongest factor influencing inequality is the redistribution of wealth in a society.  According to Michael O’Sullivan who is the CIO for Credit Suisse, global wealth in Europe increased by 6.4% over the past decade thank to economic stability in the continent. The top ten nations in Europe which recorded the largest gains in absolute terms include France, Germany, Spain, and Italy, with Poland recording the largest gain of 18% (Davies, Lluberas, & Shorrocks, 2017). However, this does not imply that there is reduction in inequality since high property prices and market valuations may reduce the rate of economic growth in the future, taking into consideration that lower income holders fail to benefit from rapid economic growth. The latest report published by Credit Suisse Research Institute indicated that the global wealth increased by 27% to $280 trillion compared to what it was ten years ago, increasing by 6.4% over the last 12 months (Davies, Lluberas, & Shorrocks, 2017). The United States is the leading country in terms of wealth gains and it has continued to perform well since the last global financial crisis. Furthermore, the Federal Reserve has played a key role in enabling employement to grow and the economy to flourish, but wealth inequity continues to be a prominent issue, a factor that indicates that democracy does not contribute to reduced inequality. Empirical literature has found no consensus on the relationship between democracy and inequality. Acemoglu, Johnson and Robinson (2001) argued that democracy has a negative effect on inequality, citing Europe of the 19th century and 20th century Latin America as case examples. In 1999, Rodrick in his study on the impact of democracy o...