Oligarchic Versus Democratic Societies
AbstractThis paper develops a model to analyze economic performance under different political regimes. An oligarchic society, where political power is in the hands of major producers, protects their property rights, but also tends to erect significant entry barriers against new entrepreneurs. Democracy, where political power is more widely di used, imposes redistributive taxes on producers, but tends to avoid entry barriers. When taxes in democracy are high and the distortions caused by entry barriers are low, an oligarchic society achieves greater efficiency. Nevertheless, because comparative advantage in entrepreneurship shifts away from the incumbents, the inefficiency created by entry barriers in oligarchy deteriorates over time. The typical pattern is therefore one of rise and decline of oligarchic societies: of two otherwise identical societies, the one with an oligarchic organization will first become richer, but later fall behind the democratic society. I also discuss how democratic societies may be better able to take advantage of new technologies, how an oligarchic society might transition to democracy because of within-elite conflict, and how the unequal distribution of income in oligarchy supports the oligarchic institutions and may keep them in place even when they become significantly costly to society.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 47.
Length: 53 pages
Date of creation: 2007
Date of revision:
democracy; economic growth; entry barriers; oligarchy; political economy; redistribution; sclerosis.;
Other versions of this item:
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-CDM-2007-10-27 (Collective Decision-Making)
- NEP-DEV-2007-10-27 (Development)
- NEP-POL-2007-10-27 (Positive Political Economics)
- NEP-SOC-2007-10-27 (Social Norms & Social Capital)
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