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Why Populist Democracy Promotes Market Liberalization

Author

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  • Grosjean, Pauline

    () (University of San Francisco)

  • Senik, Claudia

    () (Paris School of Economics)

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.

Suggested Citation

  • Grosjean, Pauline & Senik, Claudia, 2008. "Why Populist Democracy Promotes Market Liberalization," IZA Discussion Papers 3527, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3527
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    References listed on IDEAS

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    1. Branko Milanovic, 1999. "Explaining the increase in inequality during transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 299-341, July.
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    Cited by:

    1. Irina Denisova & Markus Eller & Ekaterina Zhuravskaya, 2010. "What do Russians think about transition?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(2), pages 249-280, April.
    2. Denisova, Irina & Eller, Markus & Frye, Timothy & Zhuravskaya, Ekaterina, 2009. "Who Wants To Revise Privatization? The Complementarity of Market Skills and Institutions," American Political Science Review, Cambridge University Press, vol. 103(02), pages 284-304, May.
    3. Baccini, Leonardo, 2012. "Democratization and trade policy: an empirical analysis of developing countries," LSE Research Online Documents on Economics 44924, London School of Economics and Political Science, LSE Library.
    4. Apolte, Thomas & Peters, Heiko, 2009. "Governance, Demokratie und wirtschaftliche Entwicklung in den ehemals sozialistischen Staaten," IÖB-Diskussionspapiere 1/09, University of Münster, Institute for Economic Education.

    More about this item

    Keywords

    democracy; income inequality; redistribution; market liberalization; trust;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H1 - Public Economics - - Structure and Scope of Government
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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