Capital Meets Democracy: The Impact of Franchise Extension on Sovereign Bond Markets

47 Pages Posted: 25 Apr 2016 Last revised: 1 Oct 2019

See all articles by Aditya Dasgupta

Aditya Dasgupta

University of California, Merced

Daniel Foran Ziblatt

Harvard University - Department of Government

Date Written: April 22, 2016

Abstract

By giving political rights to poor voters, do democratic political institutions pose a threat of expropriation to concentrated wealth, much of which is held in the form of financial capital? This paper tests redistributive theories of democratization with a study of the reaction of the market for sovereign bonds to the extension of political rights from elites to working-class voters between 1800 and 1920. If franchise extension redistributed political power, then this change in the political equilibrium should have registered in sovereign bond markets. Exploiting the asynchronous timing of franchise reforms across countries, we provide evidence that franchise extension contributed to large increases in the premium demanded by investors to hold sovereign debt, reflecting an increased risk of expropriation. However, bond markets became less sensitive to franchise extensions over time, a pattern potentially due to the adoption of institutions that protected the interests of investors.

Keywords: Democracy, Enfranchisement, Redistribution, Financial Markets

JEL Classification: P16, D72, N20

Suggested Citation

Dasgupta, Aditya and Ziblatt, Daniel Foran, Capital Meets Democracy: The Impact of Franchise Extension on Sovereign Bond Markets (April 22, 2016). Available at SSRN: https://ssrn.com/abstract=2768848 or http://dx.doi.org/10.2139/ssrn.2768848

Aditya Dasgupta (Contact Author)

University of California, Merced ( email )

P.O. Box 2039
Merced, CA 95344
United States

Daniel Foran Ziblatt

Harvard University - Department of Government ( email )

1737 Cambridge Street
Cambridge, MA 02138
United States

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