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Emergence and Persistence of Inefficient States

Author

Listed:
  • Acemoglu, D.
  • Ticchi, D.
  • Vindigni, A.

Abstract

Inefficiencies in the bureaucratic organization of the state are often viewed as important factors in retarding economic development. Why certain societies choose or end up with such inefficient organizations has received very little attention, however. In this paper, we present a simple theory of the emergence and persistence of inefficient states. The society consists of rich and poor individuals. The rich are initially in power, but expect to transition to democracy, which will choose redistributive policies. Taxation requires the employment of bureaucrats. We show that, under certain circumstances, by choosing an inefficient state structure, the rich may be able to use patronage and capture democratic politics. This enables them to reduce the amount of redistribution and public good provision in democracy. Moreover, the inefficient state creates its own constituency and tends to persist over time. The model shows that an equilibrium with an inefficient state is more likely to arise when there is greater inequality between the rich and the poor, when bureaucratic rents take intermediate values and when individuals are sufficiently forward-looking.

Suggested Citation

  • Acemoglu, D. & Ticchi, D. & Vindigni, A., 2006. "Emergence and Persistence of Inefficient States," Papers 12-02-2006, Princeton University, Research Program in Political Economy.
    • Handle: RePEc:ecl:prirpe:12-02-2006
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    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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