Authors: Manuel Schechtl
Institution: Stone Center Working Paper Series no. 111
Date: July 2025
Abstract:
Wealth inequality in the United States has reached heights not seen since World War II, renewing fears that concentrated economic power may undermine democracy. Yet empirical research linking inequality to democratic erosion remains inconclusive, in part because most studies focus on cross-country comparison, and examine income rather than wealth. This study exploits variation across fifty U.S. states—each embedded in a common federal framework but differing in political and economic dynamics—to test whether rising state‐level wealth inequality predicts democratic backsliding. I draw on two novel datasets: the State Democracy Index and the GEOWEALTH-US database. Pooled OLS models reveal a robust, negative association between state-level wealth inequality and democracy scores, and two‐way fixed effects estimates confirm that within‐state increases in wealth inequality are associated with declines in democratic performance. Interaction analyses show that growing Republican legislatures are associated with democratic backsliding where state-level wealth inequality is rising, and that extreme wealth shares (top 1%, 0.1%, 0.01%) exert the strongest influence. These findings demonstrate that subnational wealth disparities—and their convergence with partisan politics—might actively erode American democratic institutions.
