Lessons from Developing Countries
Chapter 2: The Political Economy of Democracies: A Review of the Literature
The existing political economy literature on democracies deals with two important questions: (i) what are the socio-economic determinants of democracy, if any? (ii) does democracy affect public policies, mainly in terms of growth and redistribution? In this chapter we provide a short review of the current theoretical and empirical findings on these issues within the political economy literature. In the first section we focus on the socio-economic conditions that could favour the foundation and consolidation of a democratic system,1 following the analysis of the structural approach as well as the strategic approach to the political change. Then, in the second section we consider the two-way relation between democracy and growth. Finally, in the third section we deal with the impact of democracy on redistributive public policies with a specific focus on taxation. 2.1 DEMOCRACY AND ITS DETERMINANTS Following Acemoglu and Robinson’s (2006) theory, democracy is a situation of political equality,2 implying a transfer of the de jure political power from the elites (the rich) to the citizens (the poor). Starting from a non-democracy, in which the elites have de jure political power, a revolutionary threat by the citizens, who have the de facto political power3, could lead to repression, which will be really attractive only in particular cases, mainly if it is neither too risky nor too costly for the elites.4 In all other cases, the threat will wring promises by the elites to future pro-citizen policies. To make these concessions credible, a formal transfer of the de...
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