Date:
Location:
Today's Speaker
Max Miller (HBS), "Who Values Democracy?"
Abstract
This paper tests redistribution-based theories of democratization using data from stock markets. Consistent with these models, I show 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. Using a shift in Catholic church doctrine in support of democracy, I provide 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. A model of asset prices and political regimes in which wealthy asset market participants face redistribution risk in democratizations 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.
Co-sponsored by FAS and IQSS, the Alberto Alesina Seminar on Political Economy supports research-related activities that integrate the study of economics and politics, whether by studying economic behavior in the political process or political behavior in the marketplace. In general, positive political economy is concerned with showing how observed differences among institutions affect political and economic outcomes in various social, economic, and political systems and how the institutions themselves change and develop in response to individual and collective beliefs, preferences, and strategies.
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All interested faculty and students are invited to attend.