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Inequality, extractive institutions, and growth in nondemocratic regimes

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  • Nobuhiro Mizuno

    (Osaka University of Economics)

  • Katsuyuki Naito

    (Asia University)

  • Ryosuke Okazawa

    (Osaka City University)

Abstract

This study investigates the effect of income inequality on economic growth in nondemocratic regimes. We provide a model in which a self-interested ruler chooses an institution that constrains his or her policy choice. The ruler must care about the extent of citizens’ support in order to remain in power. Under an extractive institution, the ruler can extract a large share of citizens’ wealth, but faces a high probability of losing power because of low public support. We show that inequality affects the ruler’s tradeoff between the expropriation of citizens’ wealth and his or her hold on power. Substantial inequality among citizens makes support for the ruler inelastic with respect to his or her institutional choice. The ruler therefore chooses an extractive institution, which impedes investment and growth. These results provide an explanation for the negative relationship between inequality and growth as well as the negative relationship between inequality and institutional quality, both of which are observed in nondemocratic countries.

Suggested Citation

  • Nobuhiro Mizuno & Katsuyuki Naito & Ryosuke Okazawa, 2017. "Inequality, extractive institutions, and growth in nondemocratic regimes," Public Choice, Springer, vol. 170(1), pages 115-142, January.
  • Handle: RePEc:kap:pubcho:v:170:y:2017:i:1:d:10.1007_s11127-016-0387-7
    DOI: 10.1007/s11127-016-0387-7
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    More about this item

    Keywords

    Dictatorship; Economic growth; Inequality; Institutions;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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