Bad policies (i.e., policies harmful to private producers such as excessive taxation, arbitrary confiscation, and negligence of pubic goods) are observed in quite a few countries. These countries tend to have autocratic regimes.I explore a reason why bad policies may benefit autocrats.I present a model economy where the autocrat manages his production (e.g., military exploits, plantation cultivation, mining) in addition to setting policies for the private producers. The autocrat has an incentive to repress the income level of private producers: it reduces the wage rate that he must offer to his workers and thereby increases the surplus from his production. Thus the autocrat chooses a tax rate that is higher than the revenue-maximizing rate: it lies on the backward-bending part of the Laffer curve. He may also choose to lower the productivity of private producers through confiscation, neglect of public goods, and other non-tax policies. I argue that the story is helpful in understanding bad policies present in militaristic regimes of the Ottoman and Mughal empires, Trujillo's regime in the plantation- based economy of the Dominican Republic, and Mobutu's regime in mineral- rich Zaire.
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Paper provided by EconWPA in its series Public Economics with number
0012002.
Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
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