Why Populist Democracy Promotes Market Liberalization

37 Pages Posted: 16 Jun 2008

Abstract

Using a new set of micro evidence from an original survey of 28 transition countries, we show that democracy increases citizens' support for the market by guaranteeing income redistribution to inequality-averse agents. Our identification strategy relies on the restriction of the sample to inhabitants of open borders between formerly integrated countries, where people face the same level of market development and economic inequality, as well as the same historically inherited politico-economic culture. Democratic rights increase popular support for the market. This is true, in particular, of inequality-averse agents, provided that they trust political institutions. Our findings suggest that one solution to the recent electoral backlash of reformist parties in the former socialist block lies in a deepening of democracy.

Keywords: democracy, income inequality, redistribution, market liberalization, trust

JEL Classification: D63, H1, H53, I38, O1, P26

Suggested Citation

Grosjean, Pauline A. and Senik, Claudia, Why Populist Democracy Promotes Market Liberalization. IZA Discussion Paper No. 3527, Available at SSRN: https://ssrn.com/abstract=1145906 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Pauline A. Grosjean (Contact Author)

UC Berkeley ( email )

210 Giannini Hall
Berkeley, CA 94720
United States

Claudia Senik

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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