Which Democracies Pay Higher Wages?∗

The labor share of income varies markedly across the set of democracies. A model of the political process, situated in a simple macroeconomic environment is analyzed in which the cause of this variation is linked to differences in the form of democracy- in particular the adoption of a presidential or parliamentary system. Presidential regimes are associated with lower taxation but lower wages. Robust evidence for the negative impact of a presidential system on the labor share is obtained using a Bayesian Model Averaging approach. Evidence is also provided that this is due to lower taxation. ∗We are grateful to seminar participants at Leicester and the 2nd European Workshop in Political Economy, Dresden. Rockey thanks Jonathan Temple for invaluable guidance and advice. The usual disclaimer applies