Abstract
Many empirical studies investigate the relationships between economic development, inequality, and democracy survival; however, establishing causal links with naturally occurring cross-country data is problematic. We address this question in a laboratory experiment, where in democracy citizens can invest in profitable projects and vote on income taxation. In the alternative regime—autocracy—efficient investment levels and equitable redistribution are implemented exogenously, but there is a risk of resources being partially expropriated. Citizens can voluntarily switch from democracy to autocracy by a majority vote, which mimics recent historical examples, where voters voluntarily delegate political powers to an autocrat in exchange for a promise of high taxation and redistribution. We find that the likelihood of democracy breakdown increases with the degree of inequality but does not vary with productivity. The link between productivity and democracy survival depends critically on the degree of sophistication of the median voter.
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Notes
Results were obtained using the Polity IV data for years 1980–2013 (http://www.systemicpeace.org/inscrdata.html). A country is classified as a democracy if its polity score (polity2 variable) is six or higher.
Several studies find that democracy survival is less likely in poor countries that experience a negative shock to economic growth (Bernhard et al. 2001, Gasiorowski 1995, for example). Moreover, Brückner and Ciccone (2011) find evidence suggesting that negative economic shocks make autocratic regimes less stable.
Related examples are provided by Acemoglu et al. (2013b) and include the election of Hugo Chávez and subsequent constitutional reforms in Venezuela; the election of Rafael Correa and subsequent reforms in Ecuador; the election of Evo Morales and subsequent reforms in Bolivia.
In a somewhat related study of Hamman et al. (2011), subjects individually choose whether or not to participate in a representative democracy governing allocation of resources to a public good. In the endogenous delegation treatment of their experiment, each group member decides whether to contribute to a public good on her own or to delegate the contribution decision to an allocator who is elected among those group members who opted in for the delegation institution.
When \(\tau =\bar{\tau }\), players are indifferent among all investment levels in \([0,w_i]\).
An alternative, albeit more complex, design would allow citizens to elect a dictator. We decided in favor of exogenous dictatorship because we wanted the vote for or against regime change to represent a choice between institutions that would not be confounded with a decision to vote for a particular candidate.
The role assignment was based on task performance in the initial three-person groups. Later in the experiment groups were randomly rematched; therefore, it was possible that some rich subjects were later matched in groups with poor subjects whose performance on the task was better than theirs. Having realized this, some rich subjects could have felt less deserving of their role later in the experiment. However, as we show in Sect. 4.3, the frequency of behavior consistent with dominant strategies increased over time; hence, there is no evidence that subjects became more other-regarding as the experiment progressed.
In a group of six subjects indexed 1, 2, 3, 4, 5 and 6, with subjects 1 and 4 designated as rich, there are six possible matchings: (1,2,3|4,5,6), (1,2,5|4,3,6), (1,2,6|4,3,5), (1,3,5|4,2,6), (1,3,6|4,2,5) and (1,5,6|4,2,3). Subjects were told, without going into details, that they will be randomly re-matched with other subjects after each sequence.
The instructions were formulated using neutral language. Terms such as “dictator,” “corruption,” “democracy” or “autocracy” were not used. Law-abiding dictators were referred to as “type 1” and corrupt as “type 2.” See the online Appendix.
There were only three such instances throughout the experiment because in order for this to happen the rich subject and the other poor subject in the subject’s group must have voted for autocracy.
GINI coefficient was computed as \((\pi _{(3)}-\pi _{(1)})/(\pi _{(1)}+\pi _{(2)}+\pi _{(3)})\), where \(\pi _{(3)}\ge \pi _{(2)}\ge \pi _{(1)}\) are the ordered payoffs of the three subjects in the group. We also tried using the median to the mean payoff ratio as an alternative measure of inequality; results were qualitatively unchanged.
Relaxing the definition of best response to include tax votes above 90 % and below 10 % in the respective cases results in a 40 % incidence rate, also without a time trend.
We computed the within- and between-subject standard deviations of investment and tax votes by sequence and found them to be stable over time (regressions of the standard deviations on the sequence number did not produce a significant time trend).
In most specifications, QRE mixed strategies are written in a logistic form. This is, to some extent, arbitrary because the “true” functional form depends on the error-generating process, which is unknown. We have chosen the functional form (5) because, unlike the logistic function, it is homogeneous of degree zero. This is important in our case because changes in the productivity parameter \(\mu \) lead to changes in the scales of payoffs, which would make the results for the same level of noise difficult to compare across the LM and HM treatments.
A formal derivation is available from the authors upon request.
For the logistic specification of QRE, the difference would be much stronger. Given the observed investment patterns, we believe specification (5) describes the data better.
As of writing this article, it remains to be seen what the consequences of this movement will be.
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Acknowledgments
We are grateful to two anonymous referees, Jens Grosser, Pablo Querubin, the participants of the 8th Annual NYU-CESS Experimental Political Science Conference, 2014 ESA North American meeting, and seminar participants at the University of New South Wales and Southern Methodist University for their comments. Special thanks to Philip Brookins for programming and help with running the experiment.
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Ryvkin, D., Semykina, A. An experimental study of democracy breakdown, income and inequality. Exp Econ 20, 420–447 (2017). https://doi.org/10.1007/s10683-016-9490-3
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DOI: https://doi.org/10.1007/s10683-016-9490-3