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Oligarchy, Democracy and State Capacity

  • Cesar Martinelli

    (CIE, ITAM)

  • Helios Herrera

    (SIPA, Columbia Univeristy)

We develop a dynamic political economy model in which invest- ment in the state capacity to levy taxes and deter crime is a policy variable, and we study the evolution of state capacity when policy is chosen by an elite. We show that democratization in the sense of ex- pansion of the elite leads to an increased investment in state capacity and to a reduction in illegal activities, and has non-monotonic effects on tax rates as it reduces the willingness of the elite to engage in particularistic spending but enhances its willingness to provide public goods. Depending on initial conditions, consensual political changes may lead either to democratization or to the entrenchment of an im- movable elite.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 97.

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Date of creation: 2011
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Handle: RePEc:red:sed011:97
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  1. Besley, Timothy J. & Persson, Torsten, 2009. "State Capacity, Conflict and Development," CEPR Discussion Papers 7336, C.E.P.R. Discussion Papers.
  2. Timothy Besley & Torsten Persson, 2009. "The Origins of State Capacity: Property Rights, Taxation, and Politics," American Economic Review, American Economic Association, vol. 99(4), pages 1218-44, September.
  3. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  4. Ling Shen, 2007. "When will a Dictator be Good?," Economic Theory, Springer, vol. 31(2), pages 343-366, May.
  5. Daron Acemoglu & James A. Robinson, 2000. "Why Did The West Extend The Franchise? Democracy, Inequality, And Growth In Historical Perspective," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1167-1199, November.
  6. Daron Agemoglu & Davide Ticchi & Andrea Vindigni, 2006. "Emergence and Persistence of Inefficient States," LABORatorio R. Revelli Working Papers Series 54, LABORatorio R. Revelli, Centre for Employment Studies.
  7. Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1199-1226, October.
  8. Erwan Quintin, 2008. "Contract enforcement and the size of the informal economy," Economic Theory, Springer, vol. 37(3), pages 395-416, December.
  9. Daron Acemoglu & James A. Robinson, 2006. "Persistence of Power, Elites and Institutions," NBER Working Papers 12108, National Bureau of Economic Research, Inc.
  10. Alessandro Lizzeri & Nicola Persico, 2004. "Why Did the Elites Extend the Suffrage? Democracy and the Scope of Government, With an Application to Britain's "Age of Reform"," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 705-763, May.
  11. Arghya Ghosh & Peter Robertson, 2012. "Trade and expropriation," Economic Theory, Springer, vol. 50(1), pages 169-191, May.
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