The Effect of Democracy and Income Inequality (Gini Index)

Abstract

This article tests the potential impact of Democracy level on income inequality using static panel data analysis for a sampling of 114 countries during the period 2010-2021. Furthermore, the Global State of Democracy Indices represents democracy (DOM), and the Gini index (GINI) represents income inequality. Panel Unit Root Tests showed that all variables are stationary at the level, and the CD test indicated no cross-sectional dependency. Also, the Hausman Test supported a fixed effects model. The estimation result showed a significant negative relationship between the Gini index and the Democracy index (an increase in one basis point of DOM corresponds to a decrease of GINI by 0.487 basis points (decreasing the income inequality).