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Philosophers and politicians have long been concerned with the harmful effects of inequality on democratic systems. Aristotle considered democracy a deviant form of government because of the potential for conflict between the poor and the wealthy (Aristotle 1998, 1304a 38; 1304b 5). Over a thousand years later, inequality continued to concern the writers of the Constitution of the United States. In Federalist 10, Madison writes, ‘… the most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society’ (Madison 1961: 74). If the distribution of resources and the human tendency to divide into competing groups were not constrained by institutional design, Madison feared that the young nation could collapse under the weight of internal conflict.
Despite these long-held concerns, recent scholarship has failed to reach a consensus on the relationship between inequality and polarization. Inequality may radicalize political parties, driving parties of the left to demand more redistribution while parties of the right seek to entrench the skewed distribution of resources (Meltzer and Richard 1981; Pontusson and Rueda 2008; Han 2015). If this is the case, rising inequality results in a divergence between parties' ideological positions on economic issues, which increases polarization in the party system. However, the mainstream parties of Western Europe have been losing vote share to challenger parties that blur their economic position to emphasize other dimensions despite rising levels of inequality (Hobolt and Tilley 2016; Rovny 2013; Piketty 2014). Furthermore, income inequality may drive down the political participation of the poor, inducing the left to moderate their policy positions to maintain their competitiveness (Beramendi 2015; Solt 2008; Solt 2010; Fenzl 2018). Consequently, ideological conflict between parties over the economy could decrease as society becomes increasingly inegalitarian. These conflicting results suggest that scholars of polarization need to more explicitly theorize the contextual conditions that moderate inequality's effect on party behavior.
To this end, I argue that the connection between party polarization on economic issues and income inequality depends on political context. The presence and strength of the positive relationship between income inequality and party polarization on economic issues is contingent on the degree of partisan sorting by income and the...