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Diversity and the power of the elites in democratic societies: Evidence from Indonesia

  • Bandiera, Oriana
  • Levy, Gilat

This paper analyzes whether political outcomes in local democracies are determined by the preferences of the median -typically poor-agents or whether they reflect the wishes of the wealthy elites. Theory suggests that when politicians belonging to different groups can form coalitions, the wealthy elites’ influence on policy choices is endogenously higher when there is diversity in preferences among the poor. The pattern of public good provision by local governments in Indonesia is consistent with this intuition. Our analysis indeed shows that when individuals have different preferences – here due to different ethnicities – democratic policy outcomes are closer to the preferences of the elites, rather than the preferences of the poor majority.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 11 ()
Pages: 1322-1330

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:11:p:1322-1330
DOI: 10.1016/j.jpubeco.2011.04.002
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  1. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-93, March.
  2. Paul Collier, 2000. "Ethnicity, Politics and Economic Performance," Economics and Politics, Wiley Blackwell, vol. 12(3), pages 225-245, November.
  3. Rao, Vijayendra, 2005. "Symbolic public goods and the coordination of collective action : a comparison of local development in India and Indonesia," Policy Research Working Paper Series 3685, The World Bank.
  4. Torsten Persson & Guido Tabellini, 2009. "Democratic Capital: The Nexus of Political and Economic Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 88-126, July.
  5. Masayuki Kudamatsu, 2007. "Has Democratization Reduced Infant Mortality in Sub-Saharan Africa? Evidence from Micro Data," ISER Discussion Paper 0685, Institute of Social and Economic Research, Osaka University.
  6. Bandiera, Oriana & Levy, Gilat, 2010. "Diversity and the Power of the Elites in Democratic Societies: A model and a test," CEPR Discussion Papers 7985, C.E.P.R. Discussion Papers.
  7. Raquel Fernández & Gilat Levy, 2005. "Diversity and redistribution," LSE Research Online Documents on Economics 544, London School of Economics and Political Science, LSE Library.
  8. Baqir, Reza & Easterly, William & Alesina, Alberto, 1999. "Public Goods and Ethnic Divisions," Scholarly Articles 4551797, Harvard University Department of Economics.
  9. Olken, Benjamin A. & Singhal, Monica, 2011. "Informal Taxation," Scholarly Articles 5689166, Harvard Kennedy School of Government.
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  11. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
  12. Timothy Besley & Masayuki Kudamatsu, 2006. "Health and Democracy," American Economic Review, American Economic Association, vol. 96(2), pages 313-318, May.
  13. Gilat Levy, 2004. "A model of political parties," LSE Research Online Documents on Economics 540, London School of Economics and Political Science, LSE Library.
  14. Gilat Levy, 2005. "The Politics of Public Provision of Education," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1507-1534.
  15. Casey B. Mulligan & Ricard Gil & Xavier Sala-i-Martin, 2004. "Do Democracies Have Different Public Policies than Nondemocracies?," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 51-74, Winter.
  16. Cagla Okten & Una Okonkwo Osili, 2004. "Contributions in heterogeneous communities: Evidence from Indonesia," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(4), pages 603-626, December.
  17. Dani Rodrik, 1999. "Democracies Pay Higher Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 707-738.
  18. Adam Przeworski & Fernando Limongi, 1993. "Political Regimes and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 51-69, Summer.
  19. Beard, Victoria A., 2007. "Household Contributions to Community Development in Indonesia," World Development, Elsevier, vol. 35(4), pages 607-625, April.
  20. Alesina, Alberto & La Ferrara, Eliana, 2005. "Ethnic Diversity and Economic Performance," Scholarly Articles 4553005, Harvard University Department of Economics.
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