Working Paper: CEPR ID: DP4187
Authors: Mark Gradstein
Abstract: This Paper considers the emergence of institutions as a political outcome, arguing that the support for protection of private property rights is stronger the higher is the economy's aggregate income and the more equal its distribution. When these conditions initially hold, the politically influential rich elite may prefer to relinquish its power through democratization in order to commit future policy-makers to the enforcement of private property rights, thus ensuring larger investment and growth. In a very unequal economy, however, this growth-enhancing democratization will not take place. These conclusions are shown to be consistent with the existing historical and cross-country evidence.
Keywords: democracy; inequality; property rights
JEL Codes: D72; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher aggregate income (E25) | stronger support for property rights protection (P14) |
| more equal income distribution (D31) | stronger support for property rights protection (P14) |
| stronger support for property rights protection (P14) | democratization (D72) |
| higher equality and aggregate income (F62) | stronger property rights (P14) |
| initial inequality is moderate and politically active middle class exists (P39) | democratization leads to increased investment and growth (O17) |
| high inequality and elite control of political power (P16) | resistance to democratization leading to low investment and growth (O17) |