Publications
Publications
- 2024
Who Values Democracy?
By: Max Miller
Abstract
This paper tests the conventional view that redistribution is central to the democratization process using data from stock markets. Consistent with this view, democratizations have a large, negative impact on asset valuations driven by a rise in redistribution risk. Across 90 countries over 200 years, risk premia are substantially elevated in democratizations, similar in magnitude to financial crises. A shift in Catholic church doctrine in support of democracy provides causal evidence that democratizations increase risk premia. Successful democratizations lead to substantial redistribution: the size of the public sector grows, income inequality falls, and the labor share of income rises. An extended version of the canonical redistribution-based model of democratization that includes asset prices can quantitatively explain these effects. The model also explains the negligible asset pricing response to autocratizations. Neither an increase in macroeconomic risk nor generic political risk can explain the results.
Keywords
Government and Politics; Risk and Uncertainty; Financial Crisis; Macroeconomics; Financial Markets; Valuation
Citation
Miller, Max. "Who Values Democracy?" Working Paper, February 2024. (Revise and Resubmit, Journal of Political Economy.)