Who Values Democracy?

This paper investigates how democratization affects asset prices, redistribution, and economic inequality across 90 countries over two centuries. Using stock market data, the author finds that democratizations substantially increase redistribution risk, leading to elevated risk premia comparable in magnitude to those observed during financial crises. The paper provides causal evidence using changes in Catholic Church doctrine supporting democracy and shows that successful democratizations are associated with larger public sectors, lower income inequality, and higher labor shares of income. An extended redistribution-based model of democratization incorporating asset prices explains much of the observed relationship between political transitions, redistribution, and financial markets.