Abstract (eng)
A growing number of researches on democratization focus on the effect of income inequality. However, most of these assume taxation to be playing a key role in income distribution. The bias of that assumption is that taxation is usually more effective in countries where democracy is already consolidated. Considering these major discrepancies, this master’s thesis focuses on the impact of the economy not under taxation (the informal sector) which is especially important in developing countries. Since this is one of the first attempts to include the informal sector in considerations on democratization and inequality, the main purpose of this research is an exploratory analysis on whether the size of the informal sector has a significant impact on the relationship between income inequality and democratization or not. To find the answer, this research employs Structural Equation Modelling, historical context analysis and multiple logistic and linear regression analyses on data from 10 countries (5 OECD countries, including Greece, Hungary, Poland, South Korea, and Turkey, and 5 non-OECD countries, including India, Indonesia, Niger, South Africa, and Thailand) during 1995 to 2019. In the structural equation model calculation of the informal sector, governmental ineffectiveness proved to be more influential on the informal sector than even informal labour itself. This finding is also highly supportable by historical context. Additionally, international pressure may reduce the size of the informal sector as it monitors government’s reaction to domestic problems. Despite the informal sector’s considerable influence, this research finds that income inequality is still the decisive factor for democratization and the survival of democracy afterwards. In the combined model, income inequality in terms of top 1% share income is strongly and positively correlated with democratization and democratic sustention. While income inequality and informal sector on their own therefore seem to be conductive of democratisation in these data, democratisation conversely is hindered and shortened when both coincide together.