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Why Populist Democracy Promotes Market Liberalization

Listed author(s):
  • Grosjean, Pauline

    ()

    (University of San Francisco)

  • Senik, Claudia

    ()

    (Paris School of Economics)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3527.

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Length: 37 pages
Date of creation: Jun 2008
Handle: RePEc:iza:izadps:dp3527
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