Panel 2. “Economic Inequality and Democracy: Are They Compatible?”
It is usually contemplated that income inequalities give rise to the option of redistribution, which may be more attractive to the majority of the electorate than the option of promoting economic growth. Democracies can be expected to mitigate inequalities in income because most voters will gain from more even distribution of income and wealth. However, attempts to prove that there is indeed more redistribution going on in democracies with high inequalities were not that successful.
On the other hand, sharp inequalities may undermine democracy. Many authors pointed out that sharp income inequalities can ruin democracies because concentrated economic resources may leave the door open for the politically powerful rich to prevent political reforms that extend rights and liberties to the poor or because inequality makes democracy costlier for the ruling rich elite due to the pressure for redistribution by the poor masses that it unavoidably creates. So democratic regimes in countries with very uneven distribution of income are likely to be unstable and can end up as autocracies. Do we have a prove of these hypotheses?
Main points for Panel Discussion
- What is the impact of inequality on economic growth? Does equality eliminate incentives for growth? Does inequality lead to pressure for redistribution that undermines stimuli for growth? Does inequality lead to social tension that undermines growth?
- In a free market with no imperfections and government regulations, what is the dynamics of inequality? Increase? Decrease? Approaching stable (unstable?) equilibrium?
- Is there an optimal level of inequality?
- Does democracy lead to lower inequality? Why communist non-democratic regimes had more egalitarian free health care, whereas in more democratic countries health care services are often provided in a less equal way (for a fee)?
- Why progressive taxation is rejected at the polls in democratic, but unequal countries?
- Is there a vicious circle (democracy leads to inequality, and inequality undermines democracy)? Under what conditions?
- Is there a virtuous circle (equality makes democracy credible and democracy contributes to equality)? Under what conditions?
- Is there an optimal level of inequality? What should be the progression in progressive taxation?