The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the Last Two Centuries
Economic Journal, 2018, 128(611), 1433-1475.
68 Pages Posted: 25 Aug 2013 Last revised: 6 Jul 2019
Date Written: September 19, 2016
Voting rights were initially limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development, as this new electorate has lower financial holdings and benefits less from the riskiness and financial returns from stock markets. Our panel data evidence covering the years 1830–1999 shows that tighter restrictions on the voting franchise induce greater stock market development, whereas a broader voting franchise is more conducive to the banking sector, consistent with Perotti and von Thadden (2006). The results are robust to controlling for other institutional arrangements and endogeneity.
Keywords: banking sector, financial development, financial structure, political economy, stock markets, suffrage institutions
JEL Classification: D72, G10, O16, P16
Suggested Citation: Suggested Citation