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Why Doesn't Capitalism Flow to Poor Countries?

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Author Info
Rafael Di Tella
Robert MacCulloch

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Abstract

We find anecdotal evidence suggesting that governments in poor countries have a more left wing rhetoric than those in OECD countries. Thus, it appears that capitalist rhetoric doesn't flow to poor countries. A possible explanation is that corruption, which is more widespread in poor countries, reduces more the electoral appeal of capitalism than that of socialism. The empirical pattern of beliefs within countries is consistent with this explanation: people who perceive corruption to be high in their country are also more likely to lean left ideologically (and to declare support for a more intrusive government in economic matters). Finally, we present a model explaining the corruption-left connection. It exploits the fact that an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat. After observing corruption, voters who care about fairness react by increasing taxes and moving left. There is a negative ideological externality since the existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the electoral appeal of capitalism.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13164.

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Date of creation: Jun 2007
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Handle: RePEc:nbr:nberwo:13164

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eduardo Lora & Mauricio Olivera, 2005. "Repercusiones electorales del Consenso de Washington," RES Working Papers 4406, Inter-American Development Bank, Research Department. [Downloadable!]
  2. Gustavo Federico Torrens, 2008. "The economic value of ideology," CEMA Working Papers: Serie Documentos de Trabajo. 378, Universidad del CEMA. [Downloadable!]
  3. Rafael Di Tella & Juan Dubra & Robert MacCulloch, 2008. "A Resource Belief-Curse? Oil and Individualism," NBER Working Papers 14556, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Rafael Di Tella & Sebastian Galiani & Ernesto Schargrodsky, 2008. "Reality versus Propaganda in the Formation of Beliefs about Privatization," NBER Working Papers 14483, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Alberto Chong & Mark Gradstein, 2008. "¿A quién le hacen falta líderes autoritarios?," RES Working Papers 4564, Inter-American Development Bank, Research Department. [Downloadable!]
  6. Chong, Alberto & Gradstein, Mark, 2006. "Imposed Institutions and Preferences for Redistribution," CEPR Discussion Papers 5922, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Rafael Di Tella & Robert MacCulloch, 2007. "Happiness, Contentment and Other Emotions for Central Banks," NBER Working Papers 13622, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Alberto Chong & Mark Gradstein, 2006. "Redistributional Preferences and Imposed Institutions," RES Working Papers 4482, Inter-American Development Bank, Research Department. [Downloadable!]
  9. Rafael Di Tella & Juan Dubra, 2006. "Crime and Punishment in the "American Dream"," NBER Working Papers 12641, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Ugo Panizza & Mónica Yañez, 2005. "Why are Latin Americans so unhappy about reforms?," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 1-29, May. [Downloadable!]
    Other versions:
  11. Alberto Alesina & George-Marios Angeletos, 2005. "Corruption, Inequality and Fairness," NBER Working Papers 11399, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Eduardo Lora & Mauricio Olivera, 2005. "The Electoral Consequences of the Washington Consensus," RES Working Papers 4405, Inter-American Development Bank, Research Department. [Downloadable!]
  13. Alberto Chong & Mark Gradstein, 2008. "Who Needs Strong Leaders?," RES Working Papers 4563, Inter-American Development Bank, Research Department. [Downloadable!]
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