Democracy under High Inequality: Capacity, Spending and Participation

Contrary to the view that inequality reduces turnout, political participation among low-income voters is higher in democracies with high levels of inequality and intermediate levels of state capacity. We address this puzzle by analyzing the link between political mobilization and spending decisions at different levels of inequality and state capacity. Under high inequality and low levels of capacity, parties find it optimal to mobilize low-income voters via targeted goods. Yet, as capacity increases, targeted mobilization becomes a less effective strategy for voters’ mobilization. To evaluate the implications of this argument we exploit a quasi-natural experiment, the anticorruption audits by the Brazilian government. We show that an exogenous increase in monitoring effort by the state breaks the equilibrium around high participation of the poor and leads to a reduction in turnout, a reduction in the provision of targeted goods, and a decline in the likelihood of reelection by incumbents.