WP79: Political transition, corruption, and income inequality in third wave democracies

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Working papers
Eric Chang

The paper examines the effect of democratization on income inequality in third-wave democracies. Using data from the World Income Inequality Database, this paper will show that income inequality has risen sharply in almost every third-wave democracy. This paper attempts to explain why income inequality rises at much faster rates in developing nations vis-à-vis developed nations. The paper argue that the key to solving this puzzle lies in a better understanding of the patterns of democratization and the consequences of corruption in new democracies. I empirically test the hypothesized corruption-inequality link at two levels: at the cross-national level using data for the world’s 30-odd countries experiencing democratic transitions during the early part of the 1990s and at the individual level using survey data from both the Afrobarometer and the East Asian Barometer. Empirical analyses at these two different levels yields supportive empirical evidence for my hypothesis, despite the fact that the measures of corruption and inequality, the model specifications, and the estimation strategies at the two levels are quite different.