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Working paper

Democratization and Barriers to Entry in a Two-Dimensional Voting Model

We propose a simple quality-ladder model with heterogeneous agents differing in their skills and wealth endowment to explain the persistence of barriers to entry in new democracies. In the model agents vote for a rate of redistribution and for the level of barriers to entry, which protect the incumbent firms from competition with new entrants. We show that even if a society democratizes, under certain conditions this leads only to the rise of redistribution, rather than to the elimination of barriers to entry. We show that this argument is particularly relevant for countries with a low level of human capital and high inequality in incomes and in skills.