A Dynamic Theory of Endogenous Constitutions Matteo Cervellati Piergiuseppe Fortunato Uwe Sunde ∗ Preliminary Version January 31, 2005 Abstract This paper studies how the dynamics of democratization influence the design of constitutions and political institutions. The process of democratization is shown to be determined by inequality in economic and political power, as well as the dynamics of economic development, while, at the same time, democratic structures shape the economic en- vironment. We show that different scenarios of political development. can arise and lead to different constitutional designs. These shape in particular the relative importance of efficiency and redistribution in the activities of the public sector, depending on the relative power and interests of different groups during the transition. Constitutions written under a strong capitalistic elite are characterized by little re- distribution and a small size of the government. The reverse holds for strongly landed and less entrenched elites. The various implica- tions of the model are shown to be in line with empirical and historical evidence. JEL-classification: H10, H40, N40, O10 Keywords: Endogenous Constitutions, Democratic Transition, Public Goods, Redistribution ∗ Matteo Cervellati: Universitat Pompeu Fabra and Universit` a di Bologna. Piergiuseppe Fortunato: EUREQua (Universit´ e de Paris I) and Universit` a di Bologna. Sunde: IZA, Bonn and University of Bonn. Contact: Uwe Sunde, P.O. Box 7240, D-53072 Bonn, Germany. Phone: +49-228-3894-221, Fax: +49-228-3894-510, Email: sunde@iza.org. Financial support from IZA is gratefully acknowledged.