According to the 2025 Regional Human Development Report, democracy plays an essential role in enabling the capabilities and agency of people, which are fundamental to human development. It provides a framework for citizen participation, representation, transparency, and accountability, ensuring that individuals have a voice in governance and policy-making that affects their lives.

Democracy also carries a promise of distributional fairness — the idea that when every voice is heard, injustice will not go unchallenged. For this reason, understanding the factors that may prevent democracies from addressing excessive inequality is essential to ensuring democratic resilience.

Latin America and the Caribbean (LAC) is home to some of the most enduring democracies in the world and has one of the most vibrant foundational electoral systems. However, it faces two paradoxes. On the one hand, longstanding democratic institutions in the region co-exists with some of the highest levels of income inequality in the world. On the other hand, while people express support for democracy, there is a growing trend towards supporting leaders who may erode democratic norms. 

65 percent of citizens in the region are dissatisfied with the functioning of democracy[1]. More than 40 percent are indifferent between democratic and autocratic regimes or believe that authoritarian regimes may be preferable provided they can “bring solutions to emerging problems”. Even though trust in public institutions in the region has structurally been low, in the last two decades it has further decreased, reaching levels around 20 percent[2].

While these trends have multiple and complex causes, UNDP analysis shows that there is a clear connection between dissatisfaction with the functioning of democracy and the persistence of inequality.  So, at a time of great uncertainty for the region, we are faced with a critical question: How much inequality (and for how long) can a democracy tolerate before its foundations begin to erode? 

The Democracy-Inequality Paradox

While democratic institutions have been consolidated in Latin America and the Caribbean, their redistributive impact remains marginal over time, as state action in the region has only been able to slightly alter the market-driven distribution of income and wealth (if at all). Why is this the case?

To answer this question, UNDP and International IDEA carried out an analysis of governance and inequalities data for countries in the region, covering the last three decades. The key takeaways of this analysis are shared in the publication Democratic Governance, Effective Governance and Inequalities in Latin America.

The framework of analysis in the publication distinguishes between democratic governance, ensuring citizen participation and representation, and effective governance, which focuses on the state’s ability to implement policies. To understand why democracies have struggled to reduce inequality, we need to look at both these levels.

In LAC, the political economy of democracy structurally favors elites, even under left-leaning governments. When progressive administrations do push for redistribution, they typically (i) face fierce resistance from business elites, media, and international investors, (ii) depend heavily on commodity booms to fund social programs, making them vulnerable to global price swings, and (iii) struggle to institutionalize redistributive gains, especially when institutions are weak and legal frameworks can be easily dismantled by successor governments. 

Without deep changes in the context of participation and representation (including political financing), a significant strengthening of the state capacity for effective and equitable economic governance (including progressive taxation and social policy), or reforms of the overall institutional architecture that allows elite capture, democracies in the region will continue to underdeliver on redistribution, even when inequality fuels massive unrest.

Breaking the Cycle: What Can Be Done?

Inequality persists in LAC because it’s structural, functional by design, and embedded into the region’s political economy. It’s not a glitch — it’s the system working as designed to favor elites. Changing means not just redistribution after the fact, but pre-distribution reforms that challenge how wealth, power, and opportunity are generated and distributed from the start

Based on the findings of the research carried out by International IDEA and UNDP, democracies in Latin America and the Caribbean need to:

• Strengthen State Capacities: Invest in professional, autonomous public institutions capable of implementing redistributive policies.
• Promote Inclusive Political Participation: Empower marginalized groups to influence policy agendas, ensuring their needs are represented.
• Adopt "Hard" Redistribution Policies: Tackle inequality at its core by reforming tax systems and increasing social transfers, even when politically challenging.
• Enhance Transparency and Accountability: Reduce corruption and patrimonialism through stronger governance mechanisms and civic oversight.
• Leverage Participatory Innovations: Expand mechanisms for direct citizen engagement in policy design, ensuring broader societal input, while protecting civic space.
• Promote enabling information spaces: Address issues such as media concentration and cooptation, as well as information pollution, to create spaces for informed debate.
• Address Historical Inequities: Implement policies that recognize and redress long-standing social and economic injustices.

Democracies thrive when citizens believe the system works for them, not just the privileged few. If inequality remains unchecked, democratic legitimacy will continue to weaken, especially among younger generations who are expressing growing and worrying distrust in democratic institutions. 

The question, “How much inequality (and for how long) can a democracy tolerate?” demands urgent attention. The region’s experience suggests that, for democracy to endure and flourish, tackling inequality must be at the heart of governance strategies. This requires effective institutions, but also an open and inclusive public sphere. Innovative mechanisms for citizens' participation, associated with renewed state capacities, can play a decisive role in this equation.

[1] UNDP, Regional Human Development Report 2025 (p. 202)

[2] Latinobarómetro, 2024