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Toke Aidt University Senior Lecturer Fellow of Jesus College
 Voting
Rights
and Public Policy
1/3-2006 to 30/11 2007. The project is funded by the Economic and Social Research Council (grant no. RES-000-22-1743). The importance of good governance for development and prosperity cannot be underestimated. The long-lasting effect of institutional factors on income differences across the world is now well-established, and among international organizations and national governments globally there is an emerging understanding that political, judiciary and bureaucratic institutions that promote accountability and transparency are imperative for promoting economic development. The aim of this research project is to investigate empirically the link between public policy outcomes and the allocation of voting rights. By marshaling historical evidence from countries in Western Europe and from countries in Latin America new insights into the consequences of the extension of the voting franchise can be gained and new tests of existing theoretical models of democratization can be conducted. More specifically, we shall investigate quantitatively how the extension of the voting franchise in Western Europe (1860-1938) affected the tax structure and quantify the role that left-wing parties played in transforming the demands of the newly enfranchised working class men into actual policies. In Latin America, we investigate how political transition in and out of democracy during the 20th century affected the size and composition of the public spending and provide an analysis of womens’ suffrage and literacy restrictions.  End-of-Grant
Report.
Dr. Toke Aidt (Principal Investigator), Faculty of Economics and Politics, University of Cambridge (Email: Toke.Aidt@econ,cam.ac.uk or tel.: + 44 1223 335231). Dr. Peter Jensen (collaborator), Department of Economics, University
of Aarhus, Denmark (Email: psjensen@econ.au.dk). Dr. Facundo Albornoz (collaborator), Department of Economics,
University of Birmingham (Email: f.albornoz.ac.uk). Mr Dalibor S. Eterovic (Research Assistant), Faculty
of Economics and Politics, University of Cambridge (Email:
dse20@econ,cam.ac.uk). Ms. Bianca Dallal (Research Assistant), Queens' College, Cambridge. Ms. Ivy Ko (Research Assistant), Homerton College, Cambridge Mr. Johannes Wieland (Research Assistant), Jesus College, Cambridge.
Cconference in Cambridge (UK) in August 2007 (from
the 6-8/8), with participation from economists and political
scientists, on Institutions, Public Policy and Economic Outcomes. More
information is available
on the conference web page.
The
papers from the conference has been published in Cambridge Working
Papers in Economics 0764 to 0774).
This research project seeks to enhance the understanding of the channels through which democracy affects prosperity. Our approach is based on a combination of careful econometric analysis of historical data, testing of existing theories, and development of new theory. In particular, by marshalling historical evidence from countries in Western Europe and in Latin America, new and at times surprising insights into the consequences of extending or restricting political rights emerge. The specific objectives of the project are i) to inquire into the impact on the tax structure and on the timing of the adoption of the income tax of the extension of the voting franchise in Western Europe (1815-1938). ii) to inquire into the impact of gender and literacy restrictions on the right to vote on the development of the fiscal state and on education attainment in Latin America (1920-2000). iii) to inquire into the causes and consequences of transitions between democracy and non-democracy in Latin America. The most important findings of the project can be summarized as follows. Our study of franchise reform in Western Europe produces four new insights. Firstly, we find that the impact of franchise reform on the tax structure cannot be understood in isolation from the improvements in tax collection technologies that were brought about by a mixture of institutional reforms, the spread of literary, and economic and social progress generally. It is the interaction between these factors that matters and democratization does not lead to the expected increase in reliance on direct taxes (including income taxes) until relative tax collection costs fall below a certain threshold. Secondly, we find that franchise extension made it less likely that a country adopted personal income taxation. This finding is a direct challenge to conventional wisdom which holds that allowing individuals with low incomes to vote must lead to more redistribution. Thirdly, we find that left-wing parties were not a major driver of the welfare state during the pre-universal suffrage era. This stands in sharp contrast to the important role attributed to left-wing parties as the propagators of the welfare state after the Second World War. Finally, our research into the consequences of women’s suffrage confirms previous results from U.S. states. It shows that granting voting rights to women was one of the major factors behind the early rise in social spending. Twentieth century Latin America provides an almost perfect laboratory for testing hypothesizes about political institutions. This is because of frequent movements between different types of political regimes. The major new insight that arises from our study of 18 countries in the region from 1920 to 2000 is the importance of the distinction between political participation and political competition. This distinction is implicitly or explicitly embodied in many definitions of democracy. Political participation figures prominently in theoretical research that stresses the demand for distributive public spending and an expansion of the size of government. A contrasting view stresses the efficiency enhancing effects of political competition and the role that it plays in limiting the size of government. Our empirical results strongly support that political participation and competition have the predicted opposite effects on the size of government. This suggests that that it is misleading, as many empirical studies tend to do, to force democracy onto a one-dimensional scale. Democracy is a multi-dimension concept and that fact must be taken serious in empirical work. We also find that much of the increase in government size due to heightened political participation can be attributed to reforms that eliminate literacy tests. Women's suffrage, in contrast, appears to have no significant impact on the size of government in this context, but did affect education attainment in interesting ways. Much progress has been made in recent years in trying to explain transitions from non-democracy to democracy and vice versa. This literature has stressed economic factors, such as inequality, income levels and economic growth, and social factors, such as threats of political violence, as key drivers of regime change. There is, however, one factor that arguably plays an important role in Latin America, but also in other parts of the world, which has been overlooked by both theoretical and empirical work. This factor is foreign intervention designed to cause regime change in other countries. We develop a theoretical framework, based on previous work by Daron Acemoglu and James Robinson, to study the role of foreign intervention. Since some political regimes are more investment friendly than others, foreign governments have an incentive to support certain regimes and to try to overthrow others. In particular, we argue that foreign investments are, due to redistributive pressures, taxed at a higher rate under consolidated democracy than under consolidated autocracy. In the latter, the economic interests of the ruling elite and foreign investors are in line. The objective of the foreign government is to improve the investment climate in the host country. Helping or hindering political transitions achieves this. In some cases, the optimal intervention strategy is to finance a coup d'état that overthrows a democratic regime and reinstates autocracy. However, often the optimal intervention strategy is subtler. One possibility is to support an existing autocracy that is threatened by revolution. Another is to promote democracy, but at the same time to empower investor-friendly elite groups. Our theoretical work produces new insights into the causes of regime transition and is supported by much circumstantial evidence. It has many implications that should be tested in future work. The research findings of the project were discussed at a two-day conference held in August 2007 at Jesus College in Cambridge on the theme "Institutions, Public Policy and Economic Outcomes". The conference brought 25 experts from the UK, Denmark, USA, Canada, Italy, and Israel together. The proceedings of the conference have been published in Cambridge Working Papers in Economics (0764 to 0774). In conclusion, the main achievement of this research project is to provide valuable new insights into the fiscal consequences of democratization or lack thereof. We believe that these insights can ultimately help inform public policies in the area.
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