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Inequality, democracy and the protection of property rights*


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     Discussions by seminar audiences in various universities (Bonn, Indiana, Stanford, SUNY-Albany, Virginia, Zürich) are gratefully acknowledged as is the helpful input of Alberto Chong, Avner Greif, Simon Johnson, and David Wettstein. Comments by two referees and the editor, Andrew Scott, have helped greatly in the exposition.


Motivated by the observed relevance of institutional quality, such as strong property rights, for economic performance, this research considers the emergence of property rights protection as a political outcome. It argues that the support for such protection is greater the more equal income distribution and the smaller political bias. When these conditions initially hold, the politically influential rich elite may prefer to relinquish its power through democratisation in order to commit future policy makers to the enforcement of property rights, thus ensuring larger investment and faster growth along the transition path. In a very unequal economy, however, such democratisation will not take place.