Fiscal redistribution around elections when democracy is not “the only game in town”

This paper examines whether policy intervention around elections affects income inequality and actual fiscal redistribution. We first develop a simplified theoretical framework which allows us to examine fiscal redistribution around elections when democracy is not “the only game in town” and there is a threat of revolution from some groups of agents. Subsequently, employing data for a panel of 65 developed and developing countries during the period of 1975-2010, we provide robust empirical evidence of electoral cycles on income inequality and actual fiscal redistribution in countries characterized as new democracies. Moreover, our analysis suggests that this effect is mainly driven by a political instability channel which induces incumbents to redistribute resources - through fiscal policy - towards the poorer segments of the society in order to convince them that “democracy works”. In contrast, inequality and actual fiscal redistribution are not affected by elections in countries characterized as established democracies.