The Political Economy of the Kuznets Curve

The paper provides a political economy theory of the Kuznets curve. When development leads to increasing inequality, this can induce political instability and force democratization on political elites. Democratization leads to institutional changes which encourage redistribution and reduce inequality. Nevertheless, development does not necessarily induce a Kuznets curve, and it is shown that development may be associated with two types of nondemocratic paths: an “autocratic disaster,” with high inequality and low output, and an “East Asian Miracle,” with low inequality and high output. These arise either because inequality does not increase with development, or because the degree of political mobilization is low.