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date: 28 October 2020

Abstract and Keywords

This article examines whether economic inequality undermines economic development and democracy in the long run. After reviewing the literature on the effect of inequality on economic development and democracy, it considers three approaches that have been put forward to explain why inequality harms the economy and democracy: (1) the political economy approach, (2) the social unrest approach, and (3) the credit market imperfections approach. A complete data set on inequality is generated using three measures of inequality: the capital share data set of Ortega and Rodriguez (2006), the Gini coefficients data set of Solt (2009), and the income Gini coefficients of the “Estimated Household Income Inequality” (EHII) data set, developed by the University of Texas Inequality Project (UTIP). The article then tests the relationship between inequality and democracy using dynamic probit models.

Keywords: economic inequality, economic development, democracy, political economy, social unrest, credit market imperfections, capital share, Gini coefficients, income, dynamic probit models

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