DP5130 Democracy, Property Rights, Redistribution and Economic Growth

Author(s): Mark Gradstein
Publication Date: July 2005
Keyword(s): democracy, growth
JEL(s): O11, P16
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5130

Protection of property rights, as well as the burden of fiscal redistribution, have long been viewed as growth related factors. It is argued here that democratization may affect both. As the economy becomes more democratic, it creates high quality institutions such as public protection of property rights, but also becomes more responsive to fiscal demands. The analysis ? which, we argue, is consistent with existing evidence - reveals that the net effect is likely to increase growth while at the same time reducing inequality. We also introduce the concept of a political bias and argue that its gradual reduction is the means to indirectly commit to high quality institutions. All this indicates, in particular, a strong link between democracy and institutional quality.