Unit 10 Women’s right to vote and the reduction in child mortality in the United States

10.6 Democracy makes a difference

The median voter model in Section 10.4 helps us to understand the impact of one of the major developments in twentieth-century economics and politics: the extension of voting rights to virtually all adults. In consequence, governments have increasingly devoted tax revenues to public services and other expenditures that differentially helped the poor. The result has been that people have acquired more of their well-being by right, as a citizen, rather than purchasing it as a marketed good or service.

The twentieth century—the century of the advance of democracy (Figure 10.6)—was also one that saw a reduction in wealth inequality, as is evident from Figure 10.5, at least up until the last quarter of the century. The growth of various forms of social insurance is a big part of the two steps up in the size of the government shown for the UK in Figure 10.2, the first taking place after the extension of suffrage in 1928, and the second in the aftermath of the Second World War.

Friedrich Hayek warned in his book Road to Serfdom that the growing size of government would undermine democracy and the rule of law, pointing to the experience of Germany under fascism and the Soviet Union under communism.¹

This does not appear to be the case in general: Figure 10.8 shows that some countries ranked highly on measures of democracy —Norway, Finland, Sweden, Denmark, and Belgium—are notable for their high levels of government tax revenues as a fraction of GDP. The US and the UK, with smaller governments, are ranked lower.^2 3

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https://core-book-server.vercel.app/macroeconomics/10-government-as-economic-actor-06-democracy-makes-a-difference.html#figure-10-8

Figure 10.8 The extent of electoral democracy and the size of government.

Note: Correlation coefficient: 0.676. Not shown are countries with a population of less than five million people and three countries (Kuwait, Libya, Ukraine) for which the ratio of government revenue to GDP is not an informative measure of the size of the government. Country labels correspond to the red points.
Michael Coppedge et al. 2025. ‘V-Dem [Country-Year/Country-Date] Dataset v15’. Varieties of Democracy (V-Dem) Project. IMF. World Economic Outlook.

correlation

Two variables in a sample of data are said to be correlated if we observe that they tend to change together. If high values of one variable (e.g. people’s earnings) commonly occur along with high values of another variable (e.g. years of education) the variables are positively correlated. When high values of one variable (e.g. ice cream sales) are associated with low values of the other variable (e.g. number of people wearing winter coats) there is a negative correlation. If variables are correlated, it doesn’t mean that there is a causal relationship between them: higher ice cream sales might not have caused fewer people to wear winter coats. See also: causality.

But this correlation does not show that a larger government promotes democracy. The most that can be said is that long-standing democracy and a large government (relative to the size of the economy) can coexist.

Other than an increase in the size of government, are there other effects of the advance of democracy on the functioning of the economy? The exper­ience of many countries suggests a positive answer. For example, the ‘golden age of capitalism’ (the three decades following the Second World War) was the first period in which all of the major economies were governed by democracies.⁴

While it seems reasonable that democracy was partly behind these success stories, for example through greater political stability, it is impossible to establish democracy as the only or main cause. Too many other things changed at the same time that might account for the economic changes.

The countries that took the lead in advancing political equality have a different balance now between work time and free time, as Figure 10.9 shows. This is not surprising, given that the reduction in working hours over the past 100 years was not simply a matter of individuals choosing shorter workdays. As explained in Unit 3 of the microeconomics volume, it was also the result of political parties (especially after the extension of the vote to workers) seeking legislation to limit the number of hours a person could be asked to work without additional pay.

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https://core-book-server.vercel.app/macroeconomics/10-government-as-economic-actor-06-democracy-makes-a-difference.html#figure-10-9

Figure 10.9 The uninterrupted duration of democracy as of 2024 and working hours (2019).

Note: The correlation coefficient is −0.573. The years of democracy measure is from Figure 10.6, using the dark-green bars (electoral democracy without substantial limits to voting rights).
Michael Coppedge et al. 2025. ‘V-Dem [Country-Year/Country-Date] Dataset v15’. Varieties of Democracy (V-Dem) Project. Robert C. Feenstra, Robert Inklaar, and Marcel P. Timmer. 2015. ‘The Next Generation of the Penn World Table’. American Economic Review 105(10): pp. 3150–3182.

Figure 10.10 shows that many of the countries that were the first to give the vote to all—Finland, Norway, Sweden, Denmark, and the Netherlands—today have more equal disposable incomes than countries with a shorter experience of this kind of political equality. In many cases, reduced inequality in disposable income was the result of government programmes that benefited poorer voters (women and workers, for example) who had previously been excluded from voting.

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https://core-book-server.vercel.app/macroeconomics/10-government-as-economic-actor-06-democracy-makes-a-difference.html#figure-10-10

Figure 10.10 The duration of democracy and inequality in disposable income (2015).

Note: The correlation coefficient is −0.658.
Michael Coppedge et al. 2025. ‘V-Dem [Country-Year/Country-Date] Dataset v15’. Varieties of Democracy (V-Dem) Project. World Inequality Database. 2025.