The relationship between the level of economic development and the lev
el of democracy found in most quantitative cross-national research imp
lies that the largest gains in democracy are experienced by countries
at intermediate levels of development. During the 1960s and 1970s, how
ever, middle-income countries were more likely to register declines in
democracy than increases. I explain this anomaly with the hypothesis
that income inequality affects democracy, and this effect often counte
racts the positive influence of economic development. Because intermed
iate levels of economic development are associated with the highest le
vels of income inequality the independent negative effect of income in
equality on change in level of democracy explains the declines in demo
cracy in middle-income countries. Cross-national data from a sample of
58 countries support the hypothesis of a negative effect of income in
equality on change in level of democracy from 1965 to 1980. This effec
t is robust when noneconomic determinants of democracy are taken into
account and when sample size is increased.