Using cross-country data, we find evidence for a significant negative interaction effect between democracy and inequality in determining the quality of growth-promoting institutions like rule of law. Democracy is associated with institutions of higher quality when inequality is lower.

Acemoglu, Johnson, Robinson, and Yared (2008) document that the cross-country correlation between income per capita and democracy disappears once including country fixed effects. This paper tests the hypothesis that the effect of income on democracy might differ systematically across countries....