Comparative Democracy and Income Distribution: Shape and Direction of the Causal Arrow

Few research studies examine the effect of income distribution on democracy cross-nationally in a simultaneous equation environment (with democracy also influencing income distribution). The most recent such study asserts that no linear relationship exists between the two variables, without testing for nonlinear relationships. In this study, I operationalize democracy and income distribution for 56 countries over the years 1973-1988. I find through pooled two-stage least-squares estimation that democracy and income distribution have nonlinear effects on each other (inverted U-shaped curves). I reflect on these findings as they affect public policy.