DP20721 Income, Democracy, and Growth: Reconciling Evidence and Theory

• Matteo Cervellati Gerrit Meyerheim Uwe Sunde
8 Oct 2025

The relation between income and democracy remains debated, empirically and theoretically. We propose a broader perspective that goes beyond a uni-directional and monocausal interpretation of the income-democracy nexus by focusing on the neglected role of the transition from economic stagnation to sustained growth. We illustrate our argument with an integrated model of long-run growth and democratisation that delivers two general insights. First, rather than higher income levels per se, it is the onset of sustained growth that increases the likelihood of democratisation. Intuitively, the faster accumulation of productive factors, such as human capital, reduces conflicts of interest and hence the elite's resistance to democracy. Second, the economic consequences of democracy are amplified when democratisation occurs after the transition to growth. We explore the validity of these novel predictions by revisiting influential empirical studies and exploiting variation in the timing of the transition to sustained growth. Our evidence is consistent with the theoretical predictions, shedding new light on the interpretation of earlier mixed findings.