Inequality, Privatization and Democratic Institutions in Developing Countries

Number: 118
Year: 2018
Author(s): Lidia Ceriani, Simona Scabrosetti, Francesco Scervini.
According to the existing theoretical literature, there are several channels through which privatization of State-owned enterprises and assets may shape the distribution of income, either increasing or decreasing the level of inequality. Assessing the actual distributional impact of privatization becomes therefore an empirical matter. This paper is a first attempt to empirically investigate the relationship between privatization and income inequality through redistribution, focusing on the role of democratic institutions in developing countries. Using an unbalanced panel of low and middle-countries in the period 1988-2008, we find that an increase in privatization revenue is negatively and significantly correlated with net-income inequality when democratic institutions are well consolidated. All the robustness checks we perform confirm this finding. Thus, our analysis seems to suggest that, in developing countries, policy makers’s choice of implementing divestiture programs while democratizing at the same time may lead to an improvement in income equality.

Lidia Ceriani Georgetown University, USA.
Simona Scabrosetti University of Pavia, Italy and Università Bocconi, Italy.
Francesco Scervini University of Pavia, Italy.

Language: English

The paper may be downloaded here.

Keywords: Inequality,Democracy,Privatization,Developing countries