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Income, the Middle Class, and Democracy∗
Alexandre Debs† and Kevin M. Morrison‡
May 26, 2015
Abstract
This paper introduces a new theory of political regime change, bridging the gap be-
tween distributive theories and their critics. Preserving essential elements of distributive
theories, we introduce an agency problem between politicians and elites, thereby in-
corporating an important causal mechanism absent in distributive accounts: intra-elite
splits. Politicians in both democracies and dictatorships choose a tax rate and a level
of corruption, both of which may be higher than the elites prefer. As the middle class
share of income rises, elites become increasingly confident that elections will restrain
both taxes and corruption. Thus, democracy becomes more likely. In contrast, average
income has an ambiguous effect on democracy. We support our argument with quanti-
tative analysis of a 117-country panel.
Word Count: 9,745.
∗The authors contributed equally to this article. We are grateful for helpful commentson the project from Barry Ames, Lisa Blaydes, Dominik Duell, Brian Fried, Victor Menaldo,Scott Morgenstern, Mircea Popa, Subhasish Ray, John Roemer, Susan Rose-Ackerman,Tyson Roberts, David Samuels, Luis Schiumerini, Susan Stokes, and seminar participantsat University of Pittsburgh and the 2013 MPSA and 2013 EPSA annual meetings, and forsuperb research assistance from Cihan Artunc, Selim Erdem Aytac, Jikuo Lu, and YoucefMsaid.†Dept. of Political Science, Yale University. Email: [email protected]‡Graduate School of Public and International Affairs, University of Pittsburgh. Email:
1 Introduction
One of the most well-known arguments in political science, generally attributed to Lipset
(1959), is the modernization hypothesis: rising income should lead authoritarian countries
to become more democratic and democratic countries to consolidate. Given recent devel-
opments, it seems as important as ever to understand whether this argument has merit. Is
there hope that China will become a democratic country, as a result of its rapid economic
growth since the late 1970s? Should we worry about the stability of democracies in Europe,
as they struggle to emerge from recession? Yet unfortunately, the empirical analyses of the
modernization hypothesis have arrived at something of a stalemate, with one’s opinion about
modernization shaped by which statistical operationalization one believes.1
Rather than beginning with a new empirical strategy, this paper returns to the roots of the
modernization hypothesis and attempts to expand its scope. The core of the theory has, since
the very start, been how rising income alters the dynamics between social classes. The exact
arguments that scholars have made—from Lipset (1959), to Rueschemeyer, Stephens and
Stephens (1992), to Boix (2003) and Acemoglu and Robinson (2006)—have been different,
but they have all revolved around the ways in which these changing dynamics between rich
1For example, Przeworksi and Limongi (1997) and Przeworski et al. (2000) have found that
income per capita was related to democratic stability, but not democratization, during the
period 1960-2000. Boix and Stokes (2003) have countered that if one extends the dataset to
include the cases that arguably inspired Lipset’s hypothesis in the first place, one finds that
income per capita was indeed correlated with democratization. More recently, Acemoglu
et al. (2008) have argued that even this historical view does not salvage the correlation
between income and democracy, once one controls for unobserved country characteristics
through fixed effects. Several scholars have now answered them, using different statistical
operationalizations or data. For a review of the modernization literature, see Cheibub and
Vreeland (2011).
1
and poor make democracy more likely.2
These class-based arguments have had enormous and well deserved influence, but it has
become clear that they seem to miss important dynamics in many regime transition episodes.3
As highlighted by Haggard and Kaufman (2012), while distributive conflicts have certainly
been present in a large number of regime transitions in recent decades, they have been absent
in almost half of them. This means that in these latter cases, revolutionary threats from the
lower classes—a necessary condition for democratization in the redistributive theories of Boix
(2003) and Acemoglu and Robinson (2006)—did not occur at all or appeared to play only a
marginal causal role. This observation raises a problem for existing modernization theories,
precisely because they have assumed that such distributive conflicts are central to conflicts
over regime type. The implication is that modernization theory’s empirical domain is much
smaller than we have assumed in the past.
In this paper, we examine the effect of rising income on democracy while accounting for
the possibility of multiple causal mechanisms, aiming to bridge the gap between seminal dis-
tributive theories of democracy and their critics and develop a theory of modernization with
more empirical reach. In our theoretical model, as in the distributive theories of Boix (2003)
and Acemoglu and Robinson (2006), politicians choose a fiscal policy, picking a level of tax
and government spending. As such, we preserve an essential element of distributive theories
of regime change. However, we move away from problematic requirements of these models:
first, that a revolutionary threat from the poor is a necessary condition for democratization,
and second, that politicians in both democracies and dictatorships are perfect representatives
of certain social classes (implementing their preferences perfectly).
To overcome these shortcomings, we introduce an agency problem between incumbent
politicians and the rich in an authoritarian regime and between politicians and citizens in
a democracy. This agency problem enables us to capture dynamics present in theories of
regime change that revolve around elite splits. Politicians may want to divert resources to
2See also Moore (1966).3See Keefer (2009); Ahlquist and Wibbels (2012); Ansell and Samuels (2014)
2
themselves through corruption, and the rich want to prevent this. In other words, we model
two conflicts: between the rich and the citzenry over redistribution, and between the rich
and politicians over corruption. We ask how changes in income affect both of these conflicts
and therefore the odds of democracy. Our hope is that encompassing distributional conflict
and intra-elite splits within one theory will enable it to make predictions about a wider set
of countries than would be the case if we only focused on one mechanism.
In brief, the effect of income on democracy in our theory works as follows. Following
redistributive (and other) theories, we assume that the rich are a pivotal group in the choice
of political regime. In deciding its preferences over regime type, this group evaluates how
the two different regimes affect the level of taxes and the level of corruption. For example,
the rich may be happy with the level of redistribution in an authoritarian regime, but they
may be unhappy with the level of corruption of the authoritarian politicians. We assume
that in a democracy, two politicians compete for office and all citizens have the right to
vote. The median voter is therefore a member of the middle class, defined in income terms
(i.e. in the middle of the income distribution). We find that as the share of national income
accruing to the middle class increases, all else equal, the equilibrium levels of both taxes and
corruption in a democracy decrease. The reason is that a wealthier voter prefers lower levels
of taxes, and the reduction in tax receipts decreases the benefit of corruption for politicians.
Therefore, as the share of income of the middle class increases, concerns about taxes and
corruption in democracy diminish, and the intra-elite split over corruption in dictatorship
widens. Democracy becomes more likely.
By contrast, the effect of average income on democracy is ambiguous. As we discuss in
more detail below, the key issue is that expectations about taxes and spending in a democracy
depend on whether government spending is a complement or substitute to the private econ-
omy—that is, whether the benefit of public spending rises or falls with average income. Since
it is likely that in some countries public goods are complements to the private economy and
in others they are substitutes, it may be difficult to find a significant relationship between av-
erage income and democracy when analyzing a heterogeneous group of countries. Our model3
therefore offers a possible explanation for the previous, inconsistent tests of modernization.
In sum, it is the income share of the middle class that matters for democracy. Our theory
is therefore in line with the mechanism at work in most theories of modernization—changing
class dynamics—but moves away from the measure of modernization used in almost every
empirical study of the topic. While rising average income is often associated with changing
class dynamics, the nature of these changes varies tremendously. The gains from rising levels
of income per capita are almost always distributed unevenly across classes (Bourguignon,
2003), in ways that are impossible to know without a deeper investigation. For example,
whereas modernization theories have often focused on how growth might benefit the lower
and middle classes, much of the recent discussion of rising inequality in the United States,
Canada, and elsewhere has focused on how growth has actually mainly benefited the top
income groups in recent years (Saez and Veall, 2005). In our data spanning 117 countries
and the period 1955-2000, changes in average income correlate with changes in the poorest
population quintile’s income only at 0.49 and with the middle quintile’s income at 0.78. In
short, the difficulties of mapping average income per capita to the rising strength of certain
classes may be another reason that empirical studies using the former variable sometimes
find null results with regard to modernization.
In contrast to most empirical work on modernization, a small number of scholars have
focused specifically on the effects of the share of the middle class on democracy, finding
a positive relationship (Barro, 1999; Easterly, 2001; Easterly, Ritzen and Woolcock, 2006;
Loayza, Rigolini and Llorente, 2012). Indeed, Loayza, Rigolini and Llorente (2012, 443)
suggest that the importance of the middle class may be responsible for the correlation between
average income and democracy found in some studies. However, their work is relatively silent
on the strategic underpinnings of these results, as are prior empirical studies of the middle
class. Our goal is to offer such micro-foundations.
The set of formal theoretic works that have studied the role of the middle class in regime
change is very small, and they all assume that a revolutionary threat is a necessary condition
4
for democratization and that politicians are perfect representatives of social classes (Boix,
2003; Acemoglu and Robinson, 2006; Leventoglu, 2014). As noted above, these assumptions
are empirically problematic. Instead, an approach that recognizes political agency problems
would be more realistic.4 Moreover, existing formal theoretic works on the topic cannot
account for the positive relationship between the middle class and democracy found in the
empirical literature. Their findings with regard to the middle class are instead ambiguous:
a richer middle class might promote democracy, by acting as a buffer between the poor
and the rich and reducing the latter’s fear of democracy, but a richer middle class also
might undermine the prospects for democracy.5 For example, if the middle class is too
rich, it cannot credibly threaten a revolution, and the dictatorship can endure. Our model
instead produces a clear prediction: as the share of national income going to the middle class
increases, democracy is more likely.
We present our argument as follows. In the next section, we develop a formal model
of regime change that encompasses distributional conflict and intra-elite conflict. In the
following section, we take our hypothesis to cross-country time-series data and find support
for our version of modernization theory: as the income share of the middle class increases,
democracy becomes more likely. In contrast, neither average income nor the income shares of
other classes have a systematic effect. The argument and findings have important empirical
and theoretical implications, especially with the growing understanding that economic growth
over recent decades seems not to have benefited middle classes as much as in previous time
periods. A final section examines these implications. An Online Appendix contains proofs
of the formal results and some empirical robustness checks, as well as an illustration of the
causal mechanism in the Brazilian transition to democracy in the early 1980s.
4For such theoretical work in dictatorship and democracy, see, respectively, Gandhi (2008);
Svolik (2009, 2012) as well as Barro (1973); Ferejohn (1986); Fearon (1999).5See Acemoglu and Robinson (2006, 266, 278, 282).
5
2 Theory
2.1 Outline of the Argument
In this section, we develop a theory that combines the distributional conflict underlying sem-
inal theories of modernization with one of the main alternative “routes” between dictatorship
and democracy: intra-elite splits.6 These elite divisions have been used to explain transitions
both to and from democracy. On the authoritarian regime side, O’Donnell and Schmitter
(1986, 19) write, “there is no [democratic] transition whose beginning is not the conse-
quence—direct or indirect—of important divisions within the authoritarian regime itself,”
and many other scholars have highlighted the importance of these divisions for democra-
tization.7 On the democratic side, Haggard and Kaufman (2012, 508-511), among others,
have highlighted intra-elite splits as one of the more important non-redistributive reasons for
authoritarian reversions. However, analyses of these divisions in both democracies and dic-
tatorships have largely ignored distributional conflict. As Keefer (2009, 665) put it: “Theory
is silent about whether inequality plays a role in elite-driven democratization.” Haggard and
Kaufman (2012, 513) agree: “Although such conflicts [i.e., intra-elite conflicts in authoritar-
ian and democratic regimes] certainly have a distributional component—and indeed a highly
conflictual one—it is harder to root them in the class-conflict logic.” An important step in
theory-building is therefore deciding how to account for these different logics in the same
theory.
Consistent with distributive theories of democracy, we allow for class conflict, by let-
ting politicians pick a level of taxes on personal income. As a departure from distributive
theories of democracy, we introduce an agency-problem between politicians and their prin-
cipals. In theories of regime change that revolve around distributional conflict, incumbent
politicians are exclusively office-seeking, as in the model of Meltzer and Richard (1981), and
6See Haggard and Kaufman (2012).7Lizzeri and Persico (2004); Llavador and Oxoby (2005); Keefer (2009); Ansell and
Samuels (2014).
6
thus perfectly represent the interests of their supporters: the rich in an authoritarian regime,
citizens in a democracy. In practice, however, divisions between supporters and incumbent
authoritarian politicians often revolve around how incumbents exploit the spoils of office, and
the corruption of authoritarian regimes is often an issue in democratic transitions (Haggard
and Kaufman, 2012). We exploit this insight, allowing for the possibility that incumbent
politicians in authoritarian and democratic regimes are not only office-seeking but also rent-
seeking.
In our model, politicians decide how much effort to expend in stealing from the public
purse.8 We will call “corruption” a costly attempt by the politician to increase his share of
the tax receipts at the expense of the population. Any attempt to steal from the public purse
is costly because politicians need to circumvent the law, convince bureaucrats to play along,
and avoid prosecution.9
Following the literature, we assume that the rich have an advantage in solving their
collective action problem.10 They represent the ruling class in dictatorship and can decide
whether to withdraw their support of the dictator and produce democratization. In a democ-
racy, they can orchestrate a coup and impose a dictatorship. The political economy of each
regime influences their incentives for regime change.
In democracy, politicians compete for votes in order to hold political office. As a result,
8Existing models of regime change do not model such decisions, taking the inefficiency of
taxation to be exogenous (Acemoglu and Robinson, 2006).9For simplicity, we assume that the politician steals from all groups in the population. We
want to capture the fact that although individuals may gain from corruption, the practice
is inefficient. Put differently, in a corrupt environment individuals confront a Prisoner’s
Dilemma. Anyone wants to extract as much as possible, but as a result everyone is worse
off than if there were no corruption. We could allow for the cost of corruption to be felt
differently by different groups, for example letting the rich benefit more from corruption in
non-democracy than in democracy.10Acemoglu and Robinson (2006, 2008).
7
politicians in democracy offer policies favored by the median voter, which by definition is a
member of the middle class.11 Dictatorship, on the other hand, is a system where a leader
serves a ruling group, unless they are unable to hold him accountable. In this latter case,
the dictator imposes his favorite policy, i.e. the revenue-maximizing tax rate and level of
corruption.
We can now analyze the effect of economic variables on the rich’s choice of institutions.
As the middle class becomes richer, all else equal, they favor lower levels of taxes and public
spending, since they pay a greater share of the tax burden (Alesina and Giuliano, 2011).
Politicians in democracy are thereby induced to offer a lower level of taxes. As tax receipts
decrease, again with everything else equal, politicians in democracy are disciplined to engage
in less corruption, given the cost of attempting to steal from the public purse.12 Therefore, as
the middle class becomes richer, democracy becomes more tempting to the rich, both because
the level of taxes is closer to their preferred level and because the level of corruption is lower.
Consequently, as the middle class becomes richer, a democracy is more likely to consolidate,
and a dictatorship is more likely to transition to democracy. To illustrate the argument, we
11By middle class, we simply refer to the group at the middle of the income distribution,
i.e. the 3rd quintile. By definition, this group contains the median voter in democracy. We
do not require that members of the middle class practice a particular set of professions or
ascribe by a universal set of norms.12This is consistent with evidence linking the wellbeing of the middle class to lower corrup-
tion around the world (Easterly, Ritzen and Woolcock, 2006; Loayza, Rigolini and Llorente,
2012). Note that our conclusion does not rely on the assumption that corruption decreases
with democratization. It is possible that some democracies have low taxes and a high level of
corruption, for example if state capacity is low and institutions are weak. The key condition
is that the level of corruption in democracy is expected to decrease, everything else equal,
with the income of the middle class. For evidence that corruption is correlated with the size
of economic rents, as proxied by the size of the public sector, see Goel and Nelson (1998);
Treisman (2007).
8
provide an example of this latter case—democratization—in the Online Appendix, focusing
on the Brazilian transition to democracy.
Therefore, employing the mechanisms of distributive conflict and intra-elite splits, we
see that a higher middle class share of income creates greater incentives for democratization
and consolidation. As the middle class becomes relatively richer, democracy implements a
lower rate of taxes and public spending, so that it becomes more attractive for the rich. In
addition, a richer middle class leads to lower levels of corruption in democracy, deepening
intra-elite splits between the authoritarian politicians and their support base, now keener to
press for democracy. Our theory thus bridges the gap between redistributional approaches
to regime change and elite-driven theories of that change.13
Importantly, the theory also shows that the effect of average income per capita on democ-
racy is generally inconclusive. The key issue is that expectations about taxes and public
spending in democracy depend on whether the public good financed by tax revenues is a com-
plement or a substitute to the private economy. If the public good is a complement—that is,
if the benefit of public spending increases with average income—the level of public funds that
can be spent on redistribution increases with average income (this would be the case if taxes
fund lump-sum redistribution). Then, as average income increases, politicans are tempted to
set higher levels of taxes and to steal more from the public purse. As a result, rich citizens
are more likely to oppose democracy as average income increases. If instead the public good
13Note that our results could still obtain if public spending were not redistributive, and if
there were no inverse relationship between the income of the middle class and redistribution.
Our assumption is that, the richer is a voter, the lower is his/her support for taxation. This
is clearly the case when the tax system is progressive, but it could also obtain if it were
regressive. If wealthier voters prefer lower taxes, then elites are more confident that as the
median voter becomes richer, he/she would support a lower level of taxes, and that with a
smaller pool of tax revenues politicians’ incentives for corruption would be reduced, given
the inherent costs in avoiding detection and prosecution.
9
is a substitute to the private economy—which would be the case if public spending in a richer
economy crowds out more efficient private provision of services—the benefit of public spend-
ing decreases with average income. If this is the case, as average income increases, the value
of the public good decreases, and politicans are less tempted to increase taxes and levels of
corruption. As a result, rich citizens are confident that a richer economy would not increase
taxes and corruption, and they are less likely to oppose democracy. Since it is likely that in
some countries public goods are complements to the private economy, and in others they are
substitutes, it may be difficult to find a significant relationship between average income and
democracy. Our argument thus offers a possible explanation for the inconclusive relationship
between average income and democracy found in the empirical literature.
We now spell out this argument in game-theoretic form.
2.2 Game-Theoretic Model
2.2.1 Set-Up
Consider a game between three social groups—the poor, the middle class, and the rich—and
a pool of politicians. Write yG for the per capita income of group G ∈ {P,M,R}, where P
stands for poor, M for middle class, and R for rich. Naturally, 0 < yP < yM < yR. Write δG
for the mass of citizens in group G. Assume that there is a mass one of citizens and neither
the rich nor the poor form a majority, i.e. δP + δM + δR = 1, with max{δP , δR
}< 1
2. Write
θG for the share of national income going to group G ∈ {P,M,R}, where θP + θM + θR = 1.
In this set-up, we can write yG = θG
δGy, where y is the average per capita income.
We investigate the effect of a richer middle class on the prospects for democracy. To do so,
we analyze the effect of an increase in the share of national income held by the middle class,
θM , as well as the effect of an increase in average income, y. In this analysis, assume that
an increase in the share of income going to the middle class comes at the expense (weakly)
of both groups, i.e. ∂θG
∂θM≤ 0 for G ∈ {P,R}.14
14The findings are robust to a weakening of this assumption, as discussed in the proofs of10
The key political decisions are a tax rate τ ∈ [0, 1] and a level of corruption γ ∈ [0, 1].
The tax rate is proportional to income and produces a benefit H (τ, y). This benefit is non-
negative, it is a concave function of τ , equal to zero for a tax rate of 0, and maximized at some
interior value τ ∈ (0, 1).15 This benefit could be interpreted as a lump-sum redistribution to
citizens in an inefficient tax system.16 It could also be interpreted as a public project with
diminishing marginal returns.17 Because the formulations are mathematically equivalent, we
will refer to the benefit as a “public good.” We are agnostic about how its value changes with
average per capita income. If it were interpreted as lump-sum redistribution, presumably
its value would increase with average income, with a richer economy sustaining greater tax
revenues. Alternatively, if it were a set of public projects, then a richer economy could crowd
out public investments. Whether the public good is a ‘complement’ or a ‘substitute’ to the
private economy will play a crucial role in understanding the effect of average income on the
likelihood of democracy.
Tax receipts are divided between citizens and the politician in office, with share si (γ)
going to player i, where i = c stands for any citizen and i = p stands for the politician in
office.18 Corruption γ is an attempt by the politician to steal from the treasury, reducing the
resources that can be spent on the public good. We assume that the share of the public good
going to citizens is a decreasing and concave function of the level of corruption γ, attaining
a maximum of 1 when there is no corruption.19 The value of corruption for the politician
claim 3 and proposition 1.
15Put differently, H (τ, y) ≥ 0 ∀τ, y, H (0, y) = 0∀y, ∂2H(τ,y)∂τ2
< 0∀τ, y and τ =
argmaxτH (τ, y).16We could have H (τ, y) = (τ − C (τ)) y, where C (τ) ≥ 0∀τ , C (0) = 0, C ′ (0) = 0,
C ′′ (τ) ≥ 0∀τ , and C ′ (1) > 1, as in Acemoglu and Robinson (2006).17See Dunning (2008); Ansell and Samuels (2014).18The shares of the citizens and the politician could add up to less than one, allowing
corruption to be socially inefficient.19Technically, sc (γ) ≥ 0∀γ, sc
′(γ) < 0 ∀γ, sc
′′(γ) < 0∀γ, sc (0) = 1. Assuming that the
benefit is not targeted to particular groups ensures that the median voter theorem holds,
11
is first increasing in γ but exhibits diminishing marginal returns, attaining a maximum at
some interior value γ ∈ (0, 1).20
Taking stock, the material utility of a member of group G from policy (τ, γ) is
uG (τ, γ) = (1− τ) yG + sc (γ)H (τ, y) (1)
For any level of corruption, we define τG (γ) as the preferred tax rate by a member of group
G. We note that τG (γ) < τ , since any voter bears part of the tax burden. Moreover, we
assume that the preferred tax rate by a member of the middle class is strictly positive for any
level of corruption.21 In addition to these material considerations, citizens have ideological
preferences for politicians, captured in a valence shock (as discussed below).
Politicians care about holding office and about maximizing their revenue in office. A
politician i in office gets utility
ui (τ, γ) = sp (γ)H (τ, y) +Rr (2)
where the first term is the endogenous revenue from office and Rr is the exogenous rent of
holding power in regime r ∈ {D,ND} (where D stands for democracy and ND for non-
democracy). A politician out of office gets a level of utility normalized to zero.
We assume that political regimes differ in the process of leadership selection and the
strength of institutions. In democracy, executive office is allocated through competitive
elections and the elected leader implements his proposed policy. In non-democracy, a leader
simplifying the analysis. For a study of corruption with targeted spending, using the PUNE
solution concept, see Acharya, Roemer and Somanathan (2013).20Technically, sp (γ) ≥ 0 ∀γ, sp
′(γ) > 0∀γ ∈ [0, γ), sp
′(γ) = 0, and sp
′′(γ) ≤ 0 ∀γ, with
the inequality being strict for γ ∈ [0, γ].21This requires an Inada condition that the marginal benefit of taxation at 0 is sufficiently
large, for any level of corruption. In this case, any solution is interior and comparative statics
are relatively simple.12
stays in office unless the ruling coalition threatens to use violence or actually deposes him.
More precisely, in democracy, two politicians, A and B, each propose a policy platform
(τ i, γi). Politicians differ along (exogenous, non-economic) dimensions that affect their pop-
ularity, captured by a valence shock vA for politician A, with cdf FA (vA), the uniform distri-
bution on [−L,L], where L is large enough that non-economic concerns can sway economic
considerations.22 Once elected, politician i implements her policy platform (τ i, γi).23
In non-democracy, the leader chooses his platform in the face of a coup constraint from the
ruling coalition. As a point of departure, and consistent with the literature, we assume that
the non-democratic leader serves the interests of the ruling coalition.24 However, we allow for
the possibility that the accountability of the leader may fail, introducing agency problems.25
Technically, we assume that the cost c of mounting a coup for the ruling coalition takes one
of two values, c ∈ {cL, cH}, where cL = 0 < cH and cH is arbitrarily large. Moreover, we
assume that the high cost cH happens with probability ε, where ε is arbitrarily small. After
a coup, the rich implement their favorite policy.
The country may begin either as a democracy or a non-democracy. In either regime,
we assume that the rich have an advantage over the poor in solving their collective action
problem.26 In a non-democracy, they represent the ruling coalition and may withdraw their
support for the leader, choosing to democratize. In a democracy, they may mount a coup
to install a non-democracy. In addition to the economic dimensions modeled here, assume
that there are other dimensions affecting the preferences of the rich for non-democracy, as
captured in a net valence shock vr in favor of a non-democratic ruler, when the initial regime
22This assumption helps ensure that the equilibrium is interior and simplifies the compar-
ative statics.23This set-up allows for a simple comparison of democracy and non-democracy. For richer
models of accountability in democracy, see, e.g., Barro (1973); Ferejohn (1986); Fearon
(1999)).24See, e.g., Boix (2003); Acemoglu and Robinson (2006).25See, e.g., Svolik (2012).26See, e.g., Acemoglu and Robinson (2006, 2008).
13
of a country is r. This is a ‘net’ valence shock in that it is equal to the (non-economic)
benefit of non-democracy minus any cost of installing or maintaining the non-democracy. vr
can take negative values and follows a cdf Fr (vr). This flexible set-up can accommodate a
variety of interpretations, for example revolutionary threats as well as crises of legitimacy
triggered by low economic growth.27
In sum, the game proceeds as follows:
1. Valence shock vr is observed;
2. The rich choose the regime type;
If the rich choose non-democracy:
1. The cost of a coup is realized;
2. The non-democratric leader picks a policy vector(τND, γND
);
3. The rich decide whether to mount a coup;
4. The policy is implemented and payoffs are accrued.
In democracy:
1. Two politicians, A andB, simultaneously propose a policy vector,(τA, γA
)and
(τB, γB
)respectively;
2. The valence shock vA is realized;
3. Citizens vote;
4. The policy is implemented and payoffs are accrued.
We solve for a subgame-perfect equilibrium, where politicians choose symmetric strategies
and citizens use weakly undominated strategies. Politicians use symmetric strategies if they
27See, e.g., O’Donnell (1973).
14
choose the same policy platform in equilibrium,(τA∗, γA∗
)=(τB∗, γB∗
), where * refers to
equilibrium strategies.28 A citizen in democracy uses a weakly undominated strategy if she
votes for A if and only if she assigns greater utility from A holding office. Likewise, a member
of the elite chooses regime R if and only if she receives higher utility in regime R than in the
alternative.
2.2.2 Solution
We solve the game by backward induction. First consider the political economy equilibrium
in each regime.
Assume that the rich have opted for non-democracy. The ruling coalition mounts a coup
if the cost of the coup is smaller than the difference between the platform offered by the
non-democratic leader and the platform that the coalition could implement after a coup.
The non-democratic leader strictly prefers to remain in office and chooses the optimal policy
consistent with the coup constraint, i.e. he chooses a policy (τND, γND) to solve the problem
maxτ,γui (τ, γ), such that uR(τND, γND)−uR(τR(0), 0) ≤ c. If the cost of the coup is cL = 0,
then the non-democratic leader has to offer the platform preferred by the ruling coalition
((τR(0), 0)). If the cost of the coup is cH , which is arbitrarily large, then the dictator can
implement his favorite policy, choosing the tax rate that maximizes tax receipts (τ) and the
level of corruption that maximizes his own share of tax receipts (γ).
Now consider the game in democracy. First, note that the median voter theorem holds.29
Therefore, for any valence shock, a politician is elected if and only if his/her platform is
preferred by a member of the middle class.
Second, observe that the optimal policy for any politician balances two objectives: elec-
toral incentives and revenue-maximizing incentives. If politicians were purely office-motivated,
28This is a natural restriction given that the structure of the game under democracy is
symmetric.29Voters have ‘intermediate preferences’ in this two-dimensional policy space (Persson and
Tabellini, 2002, 25-26).15
democratic elections could perfectly discipline politicians, since any departure from the op-
timal policy bundle for the median voter—i.e. their preferred tax rate and no endogenous
corruption—would spell electoral defeat.30 However, politicians also care about the level of
rents that they can secure in office, and the electoral mechanism is an imperfect disciplining
device.
Balancing these two objectives, politicians set a tax rate greater than the tax rate pre-
ferred by the median voter, for a given level of corruption, and no greater than the revenue-
maximizing tax rate, i.e. τ i∗ ∈(τM (γi) , τ
).31 Also, politicians set a level of corruption that
is strictly greater than the level preferred by the median voter and strictly lower than the
level that maximizes the politician’s share of benefit, i.e. γi∗ ∈ (0, γ).32 The best response
of any politician to the platform offered by the other politician is interior and unique:
Claim 1 In democracy, for any policy (τ−i, γ−i), politician i has a unique best response
(τ i, γi). Proof. See the Online Appendix.
Given these best response functions, we show that a symmetric equilibrium in democracy
exists and is unique. It is a vector(τA∗, γA∗
)=(τB∗, γB∗
)=(τD, γD
)which satisfies the
following first-order conditions:
1
2L
[−θ
M
δMy + sc
(γD) ∂H (τD, y)
∂τ
] [sp(γD)H(τD, y
)+RD
]+
1
2sp(γD) ∂H (τD, y)
∂τ= 0
(3)
1
2L
[sc
′ (γD)H(τD, y
)] [sp(γD)H(τD, y
)+RD
]+
1
2sp
′ (γD)H(τD, y
)= 0 (4)
30We would thus obtain, as a special case, the set-up of Acemoglu and Robinson (2006),
at the limit where the rents of office RD tend to infinity.31This follows from the envelope theorem.32γi∗ < γ follows from the envelope theorem. γi∗ > 0 follows from the fact that L is
arbitrarily large.16
To characterize this equilibrium, note that both equations produce a positive relationship
between tax rates and corruption under normal conditions. Take the first equation, (3),
which posits that the benefit of a change in the tax rate is zero. An increase in the level of
corruption has two effects on the optimal tax rate. On the one hand, increases in the tax
rate stir come at a greater electoral cost.33 On the other hand, increases in the tax rate
generate higher levels of revenue for the elected politician.34 This second effect dominates,
unless one assumes that L is arbitrarily small, such that other dimensions of politics could
never outweigh concerns over redistribution and corruption. As a result, the marginal benefit
of taxes increases with corruption, and (3) posits a positive relationship between taxes and
corruption. By the same reasoning, we can show that (4) posits a positive relationship
between taxes and corruption.
Next, we show that there is a unique vector satisfying both equations. Figure 1 plots
τ ∗ (γ), the value of taxes τ such that (3) holds for a given level of corruption γ, and γ∗ (τ),
the value of corruption γ such that (4) holds for a given level of taxes τ . A symmetric
equilibrium lies at the intersection of these two functions. We note that these functions must
cross at least once, since the function τ ∗ (γ) lies above γ∗ (τ) for low values of γ and below
γ∗ (τ) for high values of γ. Also, we note that these functions can only cross once, since
τ ∗ (γ) has a smaller slope than γ∗ (τ), for finite but large values of L.35 In sum, we conclude:
Claim 2 In democracy, a symmetric equilibrium of electoral platforms(τA∗, γA∗
)=(τB∗, γB∗
)=(
τD, γD)
exists and is unique. Proof. See the Online Appendix.
Interestingly, this equilibrium predicts that an increase in the share of income going to
the middle class produces a reduction in the level of taxes and the level of corruption (for a
33Put differently, the first term of (3) decreases with γ.34Put differently, the second term of (3) increases with γ.35At the limit where there is no marginal election incentive (L tends to infinity), there is
a unique symmetric equilibrium where both politicians offer τ , the level that maximizes tax
receipts, and γ, the level of corruption that maximizes the politician’s share of revenue. Put
differently, τ ∗ (γ) is a horizontal line at τ = τ and γ∗ (τ) is a vertical line at γ = γ.17
graphical representation, see Figure 2). Indeed, as the middle class becomes richer, it prefers
a lower tax rate, absent any corruption, and becomes more resistant to any increase in taxes.
Graphically, this means that as θM increases, τ ∗ (γ) shifts downwards (γM (0) decreases) and
takes a smaller slope. As a result, any attempt by a politician to steal from the public purse
is less beneficial, and the equilibrium level of corruption goes down. Formally, this means:
Claim 3 In any symmetric equilibrium in democracy, the level of taxes τD and corruption
γD decrease with the share of national income going to the middle class, θM . Proof. See
the Online Appendix.
This result plays an important role in understanding the economic motivations for de-
mocratization and democratic consolidation.
Now that we have solved for the political economy equilibria in non-democracy and democ-
racy, we evaluate the choice of political regimes. In the initial regime r, the rich prefer
democracy if it promises a higher level of utility, or vr < v, where
v = uR(τD, γD
)−[(1− ε)uR
(τR(0), 0
)+ εuR (τ , γ)
](5)
so that the rich choose democracy with probability Fr(v).
Let us investigate how this probability varies with changes in the share of income of the
middle class and with average income, θM .
Consider first the effect of changes in θM on the equilibrium policy vector in each regime.
In democracy, politicians compete for the vote of the median voter. As the share of income
going to the middle class increases, taxes and corruption goes down, as explained in claim
3. By contrast, in non-democracy, politicians either implement their preferred tax rate or
the tax rate preferred by the rich. The former is independent of θM . The latter can vary
with θM , but the effect of marginal changes in policy on the utility of the rich is nil, by the
envelope theorem. Therefore, changes in θM , through its effect on the equilibrium policy,
increases the rich’s preference for democracy.18
In addition, changes in θM have an indirect effect on the preferred regime of the rich.
As the share of the middle class increases, the share of the rich (weakly) decreases. Thus,
the rich’s preference for the regime with lower taxes decreases. Since non-democracy serves
the interest of the rich, with sufficiently high probability, then the rich’s preference for non-
democracy weakens. Therefore, this indirect effect also presses in favor of democracy and we
conclude:
Proposition 1 Democracy becomes more likely as the share of national income to the middle
class increases. Proof. See the Online Appendix.
Now consider the effect of an increase in average income on the probability of democracy.
Such an increase affects the political equilibrium in both regimes, though only changes in
the political equilibrium in democracy have an effect on the rich’s utility, given the envelope
theorem. Additionally, an increase in average income increases the income of the rich, and
can thus affect the preferences for the different regimes.
Yet ultimately the effect of an increase in average income on the political equilibrium in
democracy depends on whether the public good is a complement of the private economy.36
If the public good is a ‘complement’ of the private economy, then as average income
increases, the value of the public good increases, and politicians in democracy are tempted
to increase both the level of taxes and the level of corruption to increase the amount that
they can steal. This tends to reduce the preference of the rich for democracy. Conversely, if
the public good is a ‘substitute’ to services provided by the private economy, then as average
income increases, the value of the public good decreases and democratic politicians are less
tempted to increase the level of taxes and corruption. Therefore, as average income increases,
both the level of taxes and the level of corruption decrease in democracy and the rich are
more tempted to democratize. In sum:
36The proof gives sufficient conditions for the complete effect of an increase in average
income on the preferences of political regimes, which depends on the magnitude of the second
derivative ∂2H(τ,y)∂τ∂y
.19
Proposition 2 Democracy may become more or less likely as average income increases,
depending on the degree of complementarity or substitutability between the public good and
the private economy. Proof. See the Online Appendix.
3 Cross-Country Analysis
In this section, we evaluate the propositions of the model using cross-country time-series
data. In fact, we feel there is already suggestive evidence supporting our principal hypothesis
through this kind of analysis, in the few works that have explored the links between the
wellbeing of the middle class and democracy, all of which find a positive relationship (Barro,
1999; Easterly, 2001; Easterly, Ritzen and Woolcock, 2006; Loayza, Rigolini and Llorente,
2012). However, none of these papers use the specific variable of interest that comes out
of our theoretical work (the share of income of the middle class, narrowly defined as being
in the center of the income distribution), and with the exception of Loayza, Rigolini and
Llorente (2012) they do not include country-specific fixed effects.37 We therefore feel it is
important to study the effects of the income share of the middle class as we define it and
with the inclusion of fixed effects. Consistent with our theory, we focus on the income share
of the middle (third) quintile of the population.
To generate this variable, we draw on the datasets of Deininger and Squire (1996), Mi-
lanovic (2005) and UNU (United Nations University, World Institute for Development Eco-
nomics Research 2008), which have information on income shares of different population
quintiles (where appropriate, we combine decile information into quintiles).38 These data
37Barro (1999), Easterly (2001), and Easterly, Ritzen and Woolcock (2006) use the share of
national income accruing to the middle three quintiles of the population–that is, the middle
60 percent of the population. Loayza, Rigolini and Llorente (2012) use the percentage of
the population making more than $10 per day. As they note (p. 442), this is not really a
measure of a class “in the middle.”38For some observations, the datasets only include the Gini coefficient, and we are able to
20
have been widely used, and most importantly for our purposes, they have been used in
prominent work analyzing claims of the distributional conflict models discussed above (Free-
man and Quinn, 2012). The datasets (and the surveys on which they are based) differ in
some of the methodologies they use, so steps must be taken to ensure the observations are
compatible across different countries and years. We keep only observations based on na-
tional surveys (i.e. surveys covering the entire country geographically), including all ages,
and having a quality of at least “3” in the UNU-WIDER dataset. In addition, we follow
Dollar and Kraay (2002)’s methodology to adjust for the fact that some surveys are based
on gross income per capita while others are based on net income per capita. For two reasons,
we follow others (e.g. Boix (2003); Freeman and Quinn (2012)) and use five-year averages of
our main variable. First, it is likely that changes in income do not immediately (that is, an-
nually) affect regime change, but rather take slightly longer. The main operationalization of
Acemoglu et al. (2008), for example, is a five-year panel. And second, there are many missing
observations of income shares (the data are rarely collected on an annual basis, certainly in
developing countries), and the five-year panel helps alleviate this problem. Our final dataset
encompasses the years 1955-2000 and 117 countries.
In our analysis, we want to identify the causal effect of middle class income share, as
opposed to the income shares of other quintiles. This identification is quite challenging, since
middle class income share is clearly not randomly assigned to countries. In an ideal world,
we would have a viable instrument for this share. However, we have been unable to think of
one that would plausibly satisfy the exclusion restriction of instrumental variables analysis:
that is, that the instrument’s effects should only be through, in this case, middle class income
share and not the income share of other quintiles. Finding an instrument that affects middle
class income and not plausibly, for example, average income per capita, lower class income, or
higher class income, seems to us impossible. For identification we therefore rely on variation
over time in our variables of interest, using fixed effects for both countries and years (Angrist
derive information on quintiles from these by assuming a log-normal distribution of income
in the population.21
and Pischke, 2009).
More specifically, we operationalize our regressions by incorporating our two key indepen-
dent variables—middle class income share and average income per capita—and building off
recent works studying the effects of income per capita and inequality on democracy, partic-
ularly Acemoglu et al. (2008) and Freeman and Quinn (2012). We estimate a base equation
of the following form:
4Democracyi,t = β0 + β1Democracyi,t−1 + β2Democracyi,t−2 + β3MCSharei,t−1 + β4Incomei,t−1
+ β5Ginii,t−1 + ci + yt + εi,t
where MCShare is the middle class’s (logged) share of national income, Income is (logged)
average income of society, Gini is the Gini coefficient, and ci and yt are country and year
(period) fixed effects, respectively. In keeping with most of the recent empirical literature
on this topic, we measure our dependent variable, change in democracy, using the change
in Polity IV’s (Marshall and Jaggers, 2003) 21-point measure of political regime, in which
higher numbers indicate more democratic regimes (though as we report below, the results
are robust to using a dichotomous measure). The lagged level of democracy (both one and
two periods) is included to alleviate serial correlation caused by using five-year lags. Robust
standard errors are clustered by country.
The first column of Table 1 presents the results. Middle class income share has a sig-
nificant pro-democracy effect, in accordance with our theory.39 The level of average income
per capita enters insignificantly. In Column 2, we interact the lagged level of democracy
with the lagged income of the middle class, to test whether the income of the middle class
has different effects in democracies than in dictatorships. The interaction term does not ap-
proach significance, indicating that income’s effect is similar in both regimes: pushing toward
democracy. Middle class income also has a pro-democracy effect if one uses a dichotomous
39It is worth remembering that, as discussed earlier, existing theoretical approaches pro-
duce an ambiguous effect of the share of income held by the middle class on democracy.22
measure of democracy instead of a continuous one (using data from Cheibub, Gandhi and
Vreeland (2010); see Column 1 of Table 3 in the Online Appendix).40
In results not reported here, we controlled for several variables that might plausibly
be correlated with both middle class income and democracy: trade as a ratio of GDP, oil
production per capita, and level of education. None of these variables affected the results.
We also found similar results if we included a term capturing the squared value of the Gini
coefficient, following work that has argued that the relationship between inequality and
democracy is hump-shaped (Acemoglu and Robinson, 2006; Freeman and Quinn, 2012). In
addition, we checked whether the results were robust to interacting the middle class income
share variable with a dummy variable denoting the period in which Boix (2011) argues the
international system was “pro-democratic” (after 1991) and therefore when income would
have a stronger effect than in the previous Cold War period. The coefficient on middle
class income was robust, and we did not find evidence that it or average income had more
democratic effects during this later period. We also explored whether controlling for type of
democracy (presidential or parliamentary) and type of dictatorship (military, personalistic,
or single-party) made a difference in the results, as some have argued that certain kinds
of democracies and dictatorships are more corrupt (e.g. Gerring and Thacker, 2004).41
Including these types did not effect our results.
Finally, notwithstanding our contention that the necessary exclusion restriction is not
met, we experimented with an alternative statistical specification, using the GMM estimator
of Arellano and Bover (1995) and Blundell and Bond (1998) and instrumenting for middle
class income with its double lag and using robust standard errors and year lags. The results
are reported in Column 2 of Table 3 of the Online Appendix and are similar to those reported
40In unreported regressions, the interaction term of democracy and the income of the
middle class is also insignificant, when using a dichotomous definition of democracy.41While including direct measures of corruption as dependent or independent variables
would have been desirable, existing datasets on corruption begin around 1996, making them
incompatible with our data.
23
here (a positive coefficient on middle class income, with a p-value of 0.017).
While these results suggest that rising middle class share of income increases the chances
of democracy, and that it is a more powerful explanatory variable than average income, one
might wonder if the middle class is the only class that matters for regime change, as we have
contended. Table 2 provides some evidence to support this contention. In this regression,
we include measures of the income shares of the poor and rich classes, represented by the
first and fifth quintiles respectively. Again, the middle class has a significant, pro-democracy
effect.
Finally, we should note that we are not particularly wed to finding an insignificant result
on average income per capita—again, our theoretical finding on this is ambiguous. Nev-
ertheless, to ensure that the finding for average income is not determined by the scarcity
of quintile data, in results not reported here we ran the equation in Column 1 of Table 1
without middle class income share and the Gini coefficient. The substantive results in the
larger sample were the same.
In sum, these empirical results using cross-national time-series analysis largely lend sup-
port to the theoretical approach we have advanced in this paper: rising share of national
income of the middle class raises the probability that a country will democratize, while
average income is not a robust predictor.
4 Conclusion
This paper has revisited the modernization hypothesis with a renewed focus on theory, and
specifically on the importance of the welfare of the middle class on democracy. Class con-
flict has long had a central role in modernization theories, but recent work has noted that
this kind of conflict does not seem relevant to many regime transitions. The implication is
that modernization theory, as currently conceived, seems to apply only to a limited set of
transitions.
To examine the effect of modernization within a theoretical apparatus with broader em-24
pirical domain, we constructed a model of regime change that combined elements of the
distributional conflict approach with elements of the intra-elite conflict approach. We found
that the income share of the middle class is the key determinant of democracy, and that the
impact of average income per capita was indeterminate. As the share of the middle class
increases, the equilibrium levels of both taxes and corruption decrease, giving greater incen-
tives for the rich to push for democracy. We found quantitative support for our hypothesis
in the cross-national sample.
We hope the theoretical and empirical results here will be seen as both a broadening
and a narrowing of modernization theory. We have tried to broaden the scope of modern-
ization theory by considering a different causal mechanism than the one predominant in the
modernization literature. Given the combined prevalence of theories which focus on distri-
butional conflict and theories which involve intra-elite conflict, we think that our theory has
ample empirical domain. At the same time, our argument results in a narrowing of modern-
ization theory, by demonstrating that average income does not have a systematic effect on
democracy. What matters is the income share of the middle class.
The paper suggests several interesting avenues for future work. On the theoretical side,
there are certainly ways in which the model we present might be made more complex, with
possibly important implications. For example, one of the problems that incumbent author-
itarian politicians face in our model is the ability to credibly commit to the elite social
group that it will not steal. It would be interesting to enrich the political characterization
of the dictatorship, studying for example the effect of non-democratic institutions on the
ability to make these promises and therefore on the likelihood of intra-elite splits on eco-
nomic grounds.42 Additionally, we could expand the set of policy options available to the
authoritarian government, for example studying its incentives to encourage growth.43 On
42See e.g. Gandhi (2008); Wright (2008); Gehlbach and Keefer (2011); Boix and Svolik
(2013).43The current framework assumes an underlying economic structure governed by exogenous
forces, following standard contributions in the literature (Acemoglu and Robinson, 2006;
25
the democratic side, it would be interesting to extend the analysis to an imperfect informa-
tion setting, in which citizens receive a (possibly low-quality) signal about the corruption of
politicians.44 This could generate additional predictions about the effect of media freedom
on the likelihood of democracy. Finally, one could also endogenize the entry of politicians
from various classes, building on recent insights about the effect of income on the selection
of politicians.45
On the empirical side, our focus on the middle class, as opposed to income per capita,
perhaps sheds some light on one of the interesting patterns in recent empirical work on
modernization. Many studies focused on the post-1960 sample have not been able to identify
a modernization effect using the average income per capita measure, while scholars using
prior periods find a much stronger modernization effect (e.g. Boix, 2011). To explain this
variation, Boix (2011) has developed an important argument about why the politics of the
international system might influence the effect of rising income.
Our paper suggests an additional reason for this variation, which is that in recent decades
economic growth may not have benefited the middle class as much as it did in earlier periods.
There is evidence, for example, that recent economic growth in the United States has largely
benefited the richer classes, not the middle ones (Stiglitz, 2012, 297). A similar trend seems
to hold for other rich countries (Piketty and Saez, 2006), and our data suggest the same is
true for developing countries. Figure 3 provides the example of China, where rising average
income in recent decades has coincided with a shrinking share of middle class income. It is
interesting to note that these studies generally find a diminishing share of upper class income
directly after World War II, when the “second wave” of democratization is often said to have
begun.
Boix, 2003).44Consistent with the logic outlined here, we expect that a richer middle class would be
more willing to punish politicians after revelations of corruption, since they would bear a
greater tax burden.45See, e.g., Svolik (2013).
26
We unfortunately do not know of data that would give us an indication of how economic
growth benefited the middle class before the “first wave” of democratization, in the 19th
century, but there is no doubt that the industrialization that took place during this time
entailed quite a different political dynamic than the economic growth of recent decades.
That earlier economic growth was driven by industrialization, and “industry brought the
rise of a working class” (Eley, 2002). Even in the countries that have been industrializing
since 1960, it is possible that technological change and the vast increases in the mobility
of capital have greatly altered the relationship between economic growth and middle class
income (Stiglitz, 2012; Karabarbounis and Neiman, 2014). If so, this could explain why
average income per capita is no longer a good predictor of democracy, and it represents an
interesting area for future research.
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Figure 1: Symmetric Equilibrium in Democracy
Corrup9on γ
Tax rate τ
τ*(γ)
γ*(τ)
τD
γD
Figure 2: Effect of an Increase in the Share of Na9onal Income of the Middle Class
on the Equilibrium in Democracy
τ*(γ)
γ*(τ)
τD
γD
Tax rate τ
Corrup9on γ
Figure 3: Average income and shares of income in China
0 1 2 3 4 5 6 7 8 9
0
10
20
30
40
50
60
1960 1965 1970 1975 1980 1985 1990 1995 2000
Poorest quin6le share Middle quin6le share
Richest quin6le share Average income (ln), right axis
Table 1: Middle class income and democratization
(1) (2) Middle class income share (t-1, ln) 0.550*** 0.636*** (0.206) (0.223) Average income per capita (t-1, ln) 0.0886 0.0913 (0.0664) (0.0666) Gini (t-1) 0.00924** 0.00928** (0.00435) (0.00430) Democracy (t-1) -0.291*** 0.160 (0.0878) (0.521) Democracy (t-2) -0.239*** -0.236*** (0.0687) (0.0681) Democracy*Middle class income share (t-1) -0.172 (0.198) Constant -2.159*** -2.393*** (0.784) (0.801) Observations 395 395 R-squared 0.593 0.594 Dependent variable is change in democracy, as discussed in the text (positive coefficients reflect an association with democratization). Robust standard errors, clustered by country, are in parentheses. Both columns also include country and year fixed effects, not reported. *** p≤0.01, ** p≤0.05.
Table 2: The relative importance of the middle class
(1) Poorest class income share (t-1, ln) -0.0995 (0.131) Middle class income share (t-1, ln) 0.486** (0.245) Richest class income share (t-1, ln) -0.0255 (0.298) Average income p.c. (t-1, ln) 0.0904 (0.0663) Gini (t-1) 0.00474 (0.00852) Democracy (t-1) -0.301*** (0.0882) Democracy (t-2) -0.234*** (0.0704) Constant -1.548 (1.725) Observations 395 R-squared 0.595 Dependent variable is change in democracy, as discussed in the text (positive coefficients reflect an association with democratization). Robust standard errors, clustered by country, are in parentheses. The regression includes country and year fixed effects, not reported. *** p≤0.01, ** p≤0.05.
Table 3: Robustness checks for empirical results (Online Appendix)
(1) (2) Middle class income share (t-1, ln) 0.650** 0.486** (0.329) (0.204) Average income per capita (t-1, ln) -0.00448 0.356 (0.115) (0.197) Gini (t-1) 0.0137** 0.00536 (0.00602) (0.00365) Democracy (t-1) -0.561*** 0.696*** (0.0868) (0.103) Democracy (t-2) -0.115 -0.134** (0.0690) (0.0545) Constant -1.525 -3.536*** (1.491) (1.290) Observations 455 304 R-squared 0.514 Notes: Positive coefficients represent a positive relationship with democracy; standard errors in parenthesis. Column 1: Dependent variable is change in democracy, using dichotomous democracy measure (Cheibub et al. 2010). Column 2: Statistical technique is the GMM estimator of Arellano and Bover (1995) and Blundell and Bond (1998), instrumenting with double lags and using robust standard errors and year lags. Other estimations are OLS with country and year fixed effects (not reported) with robust standard errors clustered by country. *** p≤0.01, ** p≤0.05.
