The 22nd Barcelona GSE Lecture, "Democracy and Income Distribution," was presented by Prof. Jess Benhabib (New York University) on September 26 at Banc Sabadell Auditorium in Barcelona. Barcelona GSE Chairman Ramon Marimon (EUI, UPF and GSE) and Prof. Teresa Garcia-Milà (Banc Sabadell, UPF and GSE) presided over the event.
The complex relationship between inequality, growth, and democracy
In his research, Prof. Benhabib discovered that typical assumptions about inequality and social conflict may be too simplistic to explain why a democracy might survive or not.
"The most obvious hypothesis is that excessive and persistent inequality leads to social conflict and coups, and is incompatible with democracy — that democracy cannot survive in the absence of redistribution that mediates and ameliorates inequality," Prof. Benhabib said.
However, this argument may be too simplistic. Prof. Benhabib notes that other factors, such as distribution of power, costs of collective action, the degree of repression and the potential use of force must also be taken into account. He cited the example of new social media tools that may have reduced collective action costs.
Why is democracy more sustainable at high levels of income?
While redistribution of income may seem to ameliorate inequality, Prof. Benhabib finds that here again, a more nuanced explanation is required. "In our research, we look at what redistributions of income and assets are feasible, given a democracy's initial assets and their distribution. If redistribution is insufficient for the poor or excessive for the rich, they may turn against democracy. In turn, if no redistribution simultaneously satisfi…es the poor and the wealthy, democracy cannot be sustained," he said.
The researchers found that democracies were more viable in wealthy societies, where redistribution schemes that satisfied both rich and poor tended to emerge. But why is this the case?
"There are two possible explanations," Prof. Benhabib explained. "The first is that current wealth and current democracy are both the result of early and persistent institutions that secure property and constrain the executive.
"The second is that higher incomes reduce the intensity of conflict over the distribution of income, and thereby give way to democratic institutions that discourage expropriation and support redistributive fiscal policies under the rule of law. We believe that the second explanation is more likely," Prof. Benhabib said.
About Prof. Jess Benhabib
Jess Benhabib (PhD, Columbia University, 1976) is Paulette Goddard Professor in Political Economy and Professor of Economics at New York University. He is Fellow of the Econometric Society and Research Associate at NBER.