Can Democracy Educate a Society?

Abstract

We examine the constitutional design required for democratic societies to overcome poverty traps. Restricting agenda-setting only by ensuring subsistence levels of consumption and applying simple majority voting as decision rule fails to enable a society to overcome poverty because it does not induce capital-enhancing redistribution. We show that a combination of suitable constitutional rules can, however, overcome poverty and induce economic well-being. Besides majority voting, these rules include rotating agenda-setting, agenda repetition and tax protection rules. We highlight the crucial role of democratic institutions for economic development and discuss why the evidence for democracy fostering growth is mixed.

Keywords: constitutional design, institutions, redistribution, poverty traps, tax allowances, voting rules

JEL Classification: D72, E62, H23, H53, O11