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Donors in recent years have made some foreign aid conditional on progress toward democracy. This study investigates whether and how such conditionality works in practice. The promise of higher aid if the country democratizes only provides an incentive for democratization for political leaders who expect to remain in office after democratization occurs. I show that dictators with large distributional coalitions, who have a good chance of winning fair elections, tend to respond to aid by democratizing. In contrast, aid helps dictators with the smallest distributional coalitions hang on to power. I present a model that shows a dictator's decision calculus, given different a priori support coalitions and varying degrees of aid conditionality, and test the model implications with data from 190 authoritarian regimes in 101 countries from 1960 to 2002.