Capital Meets Democracy : The Impact of Franchise Extension on Sovereign Bond Markets

By giving political rights to poor voters, do democratic political institutions pose a threat of expropriation to concentrated wealth, much of which is held in the form of financial capital? This paper tests redistributive theories of democratization with a study of the reaction of the market for sovereign bonds to the extension of political rights from elites to working-class voters between 1800 and 1920. If franchise extension redistributed political power, then this change in the political equilibrium should have registered in sovereign bond markets. Exploiting the asynchronous timing of franchise reforms across countries, we provide evidence that franchise extension contributed to large increases in the premium demanded by investors to hold sovereign debt, reflecting an increased risk of expropriation. However, bond markets became less sensitive to franchise extensions over time, a pattern potentially due to the adoption of institutions that protected the interests of investors