Curriculum Vitae
Sascha Claudius |
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Placement Director: Neil Wallace
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Graduate Secretary & Placement Assistant: Lynn Sebulsky (814)865-1458 lms50@psu.edu |
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Curriculum Vitae |
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THESIS ABSTRACT Essay 1. “An Empirical Analysis of the Relationship between Income and Democracy”, Job Market Paper The observation that there are rich and democratic as well as poor and non-democratic countries has led scholars to hypothesize that economic development leads to political development, i.e., higher income causes democracy. This paper tackles various issues in the empirical literature investigating this claim. All democracy data are ordinal, i.e., ordered and discrete. In contrast to Barro (1999) and Acemoglu et al. (2008), who treat the democracy data as continuous, I develop and estimate a dynamic model where the ordinal democracy variable has the Markov property. As pointed out by Robinson (2006), most work in the literature fails to take into account that democracy might have an effect on income. Consequently, I test whether income has an effect on democracy and whether democracy has an effect on income. The effects between income and democracy are dynamic as they unfold over time. This leads me to employ the standard econometric causality concept in time series analysis, Granger causality. Mosconi and Seri (2006) have extended the concept of Granger causality to binary processes. Using a similar Markov approach allows me to apply their definition of Granger causality in my econometric model. I also show that GDP per capita is a unit root process for almost all countries and that failing to take this into account leads to model misspecification and misleading results. My empirical analysis suggests the following. First, higher income Granger causes democracy for full democracies, which means that a high income helps to stabilize democracies. Second, higher income Granger causes democracy for medium democracies implying that income can have a positive effect on regime type where there is already a somewhat favorable environment. Third, I find that Granger causality runs from democracy to income meaning that income and democracy form a bidirectional feedback system.
Essay 2. “Inequality and Democracy: Stylized Facts and a Structural Model” (in progress) Democracy is a regime type with a flat distribution of power. This makes it easier to redistribute income in a democracy than in an autocracy. For this reason the rich elite typically prefer autocracy while the poor majority prefer democracy. The poor majority threatens the rich elite with social unrest in order to force a democratization. The elite can answer this challenge by threatening with repression. Social unrest and repression are costly. The cost of social unrest and repression in conjunction with the level of income inequality determine the likelihood of regime change. Boix (2003) promotes the idea that income inequality inhibits a transition to democracy because the rich elite anticipates a redistribution of income. Acemoglu and Robison (2006) on the other hand, view the relationship between inequality and democratic transiton as an inverted U-shaped curve. The benefits of a transition towards democracy are small in a very egalitarian society, while the costs of repression are relatively low for the rich elite in a highly unequal society. These ideas provide the background for my empirical analysis. The analysis proceeds in two steps. There are two main sources for data on income inequality. Deininger and Squire (1996) provide an unbalanced panel of Gini coefficients compiled from different sources. Using these data Boix (2003) finds that inequality inhibits democratic transition. Houle (2009) on the other hand, uses a panel of labor shares collected by the United Nations Industrial Development Organization as a measure of income inequality. He finds that inequlity does not affect the probability of a regime change. The first step is to carry out a careful statistical analysis to determine to what extent these data sets produce the same stylized facts. The second step is to develop a structural model which will connect the theoretical literature to the empirical analysis of the data. The main novelty is to use the existing theoretical work to identify the effect of income inequality on democracy. In particular, I exploit the relationship between the unobservable cost of social unrest and repression and the observable income inequality and regime change. Furthermore, I account for the fact that the data on democracy are discrete and ordered while the inequality data are bounded. This is a novel contribution as the existing literature is not concerned with the identification of the effect of inequality on democracy. These two steps, establishing stylized facts and developing a structural model, provide a novel contribution to the literature on inequality and democracy. |
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