Does democracy produce quality of government?

Abstract This article analyses the effects of political regimes over state capacity or the quality of government (QoG): Do democratic states perform better than authoritarian ones? Previous studies point to a nonlinear relationship between democracy and government quality. It is argued here that QoG is a function of both forces of supply (leaders who have the power to make reforms) and demand (citizens' desire for mid‐ to long‐term investments over short‐term needs), the latter of which is a function of economic development. In democratic states, leaders have stronger incentives to improve QoG after a certain degree of wealth is reached, while in poorer countries they have little incentive for long‐term bureaucratic investments. Thus it is predicted that the relationship between democracy and QoG is conditional, based on economic development. With over 125 countries in the sample, this hypothesis is tested using time‐series panel data and spatial models, and strong empirical support is found.