Working Paper: CEPR ID: DP5130
Authors: Mark Gradstein
Abstract: Protection of property rights, as well as the burden of fiscal redistribution, have long been viewed as growth related factors. It is argued here that democratization may affect both. As the economy becomes more democratic, it creates high quality institutions such as public protection of property rights, but also becomes more responsive to fiscal demands. The analysis ? which, we argue, is consistent with existing evidence - reveals that the net effect is likely to increase growth while at the same time reducing inequality. We also introduce the concept of a political bias and argue that its gradual reduction is the means to indirectly commit to high quality institutions. All this indicates, in particular, a strong link between democracy and institutional quality.
Keywords: democracy; growth; property rights; redistribution
JEL Codes: O11; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Democratization (O17) | Institutional Quality (L15) |
| Institutional Quality (L15) | Property Rights Protection (P14) |
| Property Rights Protection (P14) | Economic Growth (O49) |
| Democratization (O17) | Economic Growth (O49) |
| Democratization (O17) | Fiscal Redistribution (H23) |
| Institutional Quality (L15) | Economic Growth (O49) |