Economic Effects of Democracy. An Empirical Analysis

Abstract

This research analyses through the use of instrumental variables estimation whether democracy has an effect on variables belonging to three different categories: fiscal policy, inequality in income distribution and political instability. It shows there is no stable relation between democracy and fiscal policy variables between countries of the sample in the 1978-1988 period. Democracy, on the other hand, significantly affects the difference in middle class income share (positively) and in changes at the top of the executive (negatively).

Keywords: Democracy, Fiscal Policy, Inequality, Event Study, Instrumental Variables

JEL Classification: C21, E62, O15, O17