There are two principal ways that redistribution occurs in democracies. One is across income groups – class-based politics. The other is across groups not defined by class, such as those based on language, race or ethnicity. Using a new data set comprising 81 countries, we calculate measures of class-based inequality (“within-group inequality”) and group-based inequality (“between-group inequality”). We then examine empirically the relationship between democracy and these two forms of inequality. We find a strong and robust relationship between democracy and between-group inequality but no such relationship between democracy and within-group inequality or overall inequality. Two- stage least squares with a new instrument for democracy suggests this relationship be- tween democracy and lower between-group inequality may be causal. The results are consistent with group-based politics in democracies that disproportionately benefit the richest members of the poorest groups. We also find that the negative relationship between democracy and between-group inequality is strongest in the most ethnically diverse societies, and that that there is a negative relationship between democracy and class-based inequality in the most ethnically homogeneous countries. Theoretical work on democracy and inequality should therefore focus on the interaction between class and group, with the political incentives to target “class” within groups mediated by the level of ethnic diversity in society.