Why Populist Democracy Promotes Market Liberalization

Using a new set of micro evidence from an original survey of 28 transition countries, we show that democracy increases citizens’ support for the market by guaranteeing compensating justice to inequality-averse agents. Our identification strategy relies on the restriction of the sample to inhabitants of open borders between formerly integrated countries, where people face the same level of market development and economic inequality, as well as the same historically inherited politico-economic culture. Political trust emerges as a necessary condition to convey the redistributive ability of democratic institutions and increase popular support for the market in the countries of the former USSR; this is not the case in more advanced and stable democracies, like those of the new European Union members. Our findings suggest that one solution to the recent electoral backlash of reformist parties in the former socialist block lies in a deepening of democracy. JEL codes: D63, H1, H53, I38, O1, P26.