Democracy, Redistribution, and Political Participation: Evidence from Sweden 1919-1938

In this paper, we compare how two different types of political regimes—direct versus representative democracy—redistribute income towards the relatively poor segments of society after the introduction of universal and equal suffrage. Swedish local governments are used as a testing ground since this setting offers a number of attractive features for a credible impact evaluation. Most importantly, we exploit the existence of a population threshold, which partly determined a local government’s choice of democracy to implement a regression-discontinuity design. The results indicate that a representative democracy spends 40-60 percent more on public welfare. Our interpretation is that direct democracy may be more prone to elite capture than representative democracy since the elite’s potential to exercise de facto power is likely to be greater in direct democracy after democratization. This is a revised and extensively rewritten version of the paper “The Policy Consequences of Direct versus Representative Democracy: A Regression Discontinuity Approach.” We thank four anonymous referees, the editor Daron Acemoglu, Torsten Persson, David Strömberg, Jakob Svensson and Erik Nydahl for comments. We also thank seminar participants at the BREAD/CEPR/AMID conference in Paris, the conference on “Evaluation of Political Reforms” in Mannheim, IGIER, Catholic University in Milan, IIES, Ratio, the European Economic Association Meetings in Barcelona, University of Copenhagen, Stockholm School of Economics, Uppsala University, University of Aarhus, the ANU Economics and Democracy Conference in Canberra, and the Annual Meeting of American Public Choice Society in Las Vegas, the World Congress of the Econometric Society in Shanghai and the Barcelona GSE summer forum. We thank Handelsbanken’s Research Foundations for financial support. Θ Department of Economics, Stockholm University, E-mail: [email protected] # Department of Economics, Stockholm University, E-mail: [email protected]