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Populist Policies in the Transition to Democracy

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  • Daniel Mejía

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  • Carlos Esteban Posada

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Abstract

This paper develops a political economy model that provides an explanation as for why ruling elites in oligarquic societies may rely on income redistribution to the poor (the masses) in order to prevent them from attempting a revolution. We refer to this kind of redistribution as populist redistribution because, first it does not increase the poor’s productive capacity (human capital), and second it seeks to “buy” political support (peace) to perpetuate the elite’s control of political power. We examine the conditions under which ruling elites choose to deter the poor (by means of military repression and/or populist redistribution), to engage in a dispute with the poor for the control of political power, or, alternatively, to extend democracy. According to the results of the model populist redistribution (or military repression), if any, increases with initial wealth inequality and with the amount of redistribution that the poor can undertake under democracy, and decreases with the relative importance of a human capital externality in production. The model explains why in some cases the use of an apparently ine cient policy of populist redistribution turns out to be optimal for both groups (the ruling elite and the poor class) when the alternative is to use of military repression or default to conflict.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 349.

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Handle: RePEc:bdr:borrec:349

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Keywords: This paper develops a political economy model that provides an explanation as for why ruling elites in oligarquic societies may rely on income redistribution to the poor (the masses) in order to prevent them from attempting a revolution. We refer to this kind of redistribution as populist redistribution because; first it does not increase the poor’s productive capacity (human capital); and second it seeks to “buy” political support (peace) to perpetuate the elite’s control of political power. We examine the conditions under which ruling elites choose to deter the poor (by means of military repression and/or populist redistribution); to engage in a dispute with the poor for the control of political power; or; alternatively; to extend democracy. According to the results of the model populist redistribution (or military repression); if any; increases with initial wealth inequality and with the amount of redistribution that the poor can undertake under democracy; and decreases with the relative importance of a human capital externality in production. The model explains why in some cases the use of an apparently ine cient policy of populist redistribution turns out to be optimal for both groups (the ruling elite and the poor class) when the alternative is to use of military repression or default to conflict.;

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References

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  1. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  3. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-98, December.
  4. Daron Acemoglu, 2007. "Oligarchic Versus Democratic Societies," Carlo Alberto Notebooks 47, Collegio Carlo Alberto.
  5. Jeffrey D. Sachs, 1989. "Social Conflict and Populist Policies in Latin America," NBER Working Papers 2897, National Bureau of Economic Research, Inc.
  6. Herschel I. Grossman & Minseong Kim, 1997. "Predation and Accumulation," NBER Working Papers 5357, National Bureau of Economic Research, Inc.
  7. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  8. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  9. Acemoglu,Daron & Robinson,James A., 2006. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521855266, November.
  10. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism in Latin America," NBER Books, National Bureau of Economic Research, Inc, number dorn91-1.
  11. Engerman, Stanley L. & Sokoloff, Kenneth L., 2005. "The Evolution of Suffrage Institutions in the New World," The Journal of Economic History, Cambridge University Press, vol. 65(04), pages 891-921, December.
  12. Rudiger Dornbusch & Sebastian Edwards, 1991. "Introduction to "The Macroeconomics of Populism in Latin America"," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 1-4 National Bureau of Economic Research, Inc.
  13. Oded Galor & Omer Moav, 2006. "Das Human-Kapital: A Theory of the Demise of the Class Structure," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 85-117.
  14. Francisco H.G. Ferreira, 2001. "Education for the masses? The interaction between wealth, educational and political inequalities," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(2), pages 533-552, July.
  15. Campante, Felipe R. & Ferreira, Francisco G.H., 2004. "Inefficient lobbying, populism and oligarchy," Policy Research Working Paper Series 3240, The World Bank.
  16. Ernesto Dal Bó & Pedro Dal Bó, 2011. "Workers, Warriors, And Criminals: Social Conflict In General Equilibrium," Journal of the European Economic Association, European Economic Association, vol. 9(4), pages 646-677, 08.
  17. Herschel I. Grossman & Minseong Kim, 2003. "Educational Policy: Egalitarian or Elitist?," Economics and Politics, Wiley Blackwell, vol. 15(3), pages 225-246, November.
  18. Bourguignon, F. & Verdier, T., 1997. "Oligarchy, Democracy, Inequality and Growth," DELTA Working Papers 97-10, DELTA (Ecole normale supérieure).
  19. Grossman, Herschel I & Kim, Minseong, 1995. "Swords or Plowshares? A Theory of the Security of Claims to Property," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1275-88, December.
  20. Gershenson, Dmitriy, 2002. "Sanctions and Civil Conflict," Economica, London School of Economics and Political Science, vol. 69(274), pages 185-206, May.
  21. Miguel Urrutia, 1991. "On the Absence of Economic Populism in Colombia," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 369-391 National Bureau of Economic Research, Inc.
  22. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  23. Hirshleifer, Jack, 1991. "The Technology of Conflict as an Economic Activity," American Economic Review, American Economic Association, vol. 81(2), pages 130-34, May.
  24. Daron Acemoglu, 2003. "The Form of Property Rights: Oligarchic vs. Democratic Societies," NBER Working Papers 10037, National Bureau of Economic Research, Inc.
  25. Mark Gradstein, 2007. "Inequality, democracy and the protection of property rights," Economic Journal, Royal Economic Society, vol. 117(516), pages 252-269, 01.
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Citations

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Cited by:
  1. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.
  2. Francisco H. G. Ferreira & Filipe Campante, 2004. "Inefficient lobbying, populism and oligarchy," Textos para discussão 483, Department of Economics PUC-Rio (Brazil).
  3. Jennings, Colin, 2009. "The Good, the Bad and the Populist: A Model of Political Agency with Emotional Voters," SIRE Discussion Papers 2009-30, Scottish Institute for Research in Economics (SIRE).
  4. Oded Galor, 2011. "Inequality, Human Capital Formation and the Process of Development," Working Papers 2011-7, Brown University, Department of Economics.
  5. Thaize Challier, M.-Christine, 2010. "Socio-political conflict, social distance, and rent extraction in historical perspective," European Journal of Political Economy, Elsevier, vol. 26(1), pages 51-67, March.
  6. Savoia, Antonio & Easaw, Joshy & McKay, Andrew, 2010. "Inequality, Democracy, and Institutions: A Critical Review of Recent Research," World Development, Elsevier, vol. 38(2), pages 142-154, February.
  7. Begovic, Boris & Paunovic, Marko, 2011. "Political support for enterprise restructuring and voting in Serbia," European Journal of Political Economy, Elsevier, vol. 27(1), pages 171-180, March.

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