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Abstract
This paper outlines the methodological and empirical limitations of analysing the potential relationship between complex social phenomena such as democracy and inequality. It shows that the means to assess how they may be related is much more limited than recognised in the existing literature that is laden with contradictory hypotheses and findings. Better understanding our scientific limitations in studying this potential relationship is important for research and policy because many leading economists and other social scientists such as Acemoglu and Robinson mistakenly claim to identify causal linkages between inequality and democracy but at times still inform policy. In contrast to the existing literature, the paper argues that ‘structural’ or ‘causal’ mechanisms that may potentially link the distribution of economic wealth and different political regimes will remain unknown given reasons such as their highly complex and idiosyncratic characteristics, fundamental econometric constraints and analysis at the macro-level. Neither new data sources, different analysed time periods nor new data analysis techniques can resolve this question and provide robust, general conclusions about this potential relationship across countries. Researchers are thus restricted to exploring rough correlations over specific time periods and geographic contexts with imperfect data that are very limited for cross-country comparisons.
Acknowledgements
I am grateful for funding from the Institute for New Economic Thinking, and the Federal Ministry for Economic Cooperation and Development in Germany. I am also thankful for comments from Sarah Brierley and anonymous journal reviewers, and guidance from Luis Felipe López-Calva.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1. A political regime is viewed here – in line with Boix (Citation2003) – as a means to collectively combine the interests and preferences of individuals.
2. Perotti (Citation1996) states to have found similar results.
3. Beyond the methodological and empirical limitations discussed in the following, a shortcoming in this literature is the analysis of inequality (or increasing inequality) in isolation, without weighting the potential benefits of overall greater levels of income, wealth or social outcomes relative to changes in levels of equality. That is, irrespective of levels of inequality across countries, the bottom 40% of the population in democracies likely often have greater wealth and social outcomes than the top 60% in non-democracies. It is also conceivable that citizens in poor countries may tolerate increasing inequality provided that poverty is reducing (i.e. even though income levels of the better off would be increasing more rapidly).
4. Likewise, most studies assume a median citizen with median political preferences, although the political preferences of individual citizens – whether of the poor or non-poor, the disenfranchised or elite – can also likely be influenced by a range of idiosyncratic factors.
5. See also Cartwright (Citation2007).
6. Moreover, measuring the extent of citizen participation in the process of attaining reduced inequality presents another critical constraint for empirical analysis – this refers to the degree to which citizens would participate in a legitimate, responsive and democratic process of generating and distributing wealth and in the process of acquiring skills required to do so (Sen, Citation2009). This process may indirectly take place through means that enable citizens to make complaints about basic public services, and governments taking action to improve these services, or may indirectly take the form of representation in parliament.
7. See KPMG for trends in tax rates across countries, www.kpmg.com/global/en/services/tax