Mizuno, Nobuhiro and Naito, Katsuyuki and Okazawa, Ryosuke (2012): Inequality, extractive institutions, and growth in nondemocratic regimes.
Download (395kB) | Preview
This paper investigates the effect of inequality on economic growth in nondemocratic regimes. We provide a model where a self-interested ruler chooses an institution that constrains the policy choice of the ruler. The ruler must care about the support share of citizens to keep power. Under an extractive institution, the ruler can extract a large share of citizens' wealth, but faces a high probability of losing power due to low public support. We show that inequality affects the ruler's trade-off between his or her expropriation of citizens' wealth and hold on power. Larger inequality among citizens makes the support share for the ruler less responsive to the choice of the institution by the ruler. This situation allows the ruler to choose an extractive institution without a significant increase in the risk of losing power. Hence, large inequality leads to extractive institutions and impedes investment and growth. These results provide an explanation for the negative relationship between inequality and growth observed in nondemocratic countries and the negative relationship between inequality and quality of institutions.
|Item Type:||MPRA Paper|
|Original Title:||Inequality, extractive institutions, and growth in nondemocratic regimes|
|Keywords:||Dictatorship; Economic Growth; Inequality; Institutions|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
|Depositing User:||Nobuhiro Mizuno|
|Date Deposited:||19 Sep 2012 11:40|
|Last Modified:||25 Feb 2016 15:33|
Acemoglu, D., 2005. Politics and economics in weak and strong states. Journal of Monetary Economics, 52, 1199-1226.
Acemoglu, D., Johnson, S., Robinson, J.A., 2001. The colonial origins of comparative development: an empirical investigation. American Economic Review, 91, 1369-1401.
Acemoglu, D., Johnson, S., Robinson, J.A., 2002. Reversal of fortune: geography and institutions in the making of the modern world income distribution. American Economic Review, 117, 1231-1294.
Acemoglu, D., Robinson, J.A., 2006. Economic Origins of Dictatorship and Democracy. Cambridge University Press.
Acemoglu, D., Verdier, T., Robinson, J.A., 2004. Kleptocracy and divide-and-rule: a model of personal rule. Journal of the European Economic Association, 2, 162-192.
Alesina, A., Angeletos, G.M., 2005. Corruption, inequality, and fairness. Journal of Monetary Economics, 52, 1227-1244.
Alesina, A., Perotti, R., 1996. Income distribution, political instability, and investment. European Economic Review, 40, 1203-1228.
Alesina, A., Rodrik, D., 1994. Distributive policies and economic growth. Quarterly Journal of Economics, 109, 465-490.
Banerjee, A., Duflo, E., 2003. Inequality and growth: what can the data say? Journal of Economic Growth, 8, 267-299.
Barreto, R.A., 2000. Endogenous corruption in a neoclassical growth model. European Economic Review, 44, 35-60.
Barro, R., 1973. The control of politicians: an economic model. Public Choice, 14, 19-42.
Barro, R., 2000. Inequality and growth in a panel of countries. Journal of Economic Growth, 5, 5-32.
Benabou, R., 1996. Inequality and growth. NBER Macroeconomics Annual, 11, 11-74.
Bertola, G., 1993. Factor shares and savings in endogenous growth. American Economic Review, 83, 1184-1198.
Besley, T., 2006. Principled Agents?: The Political Economy of Good Government. Oxford University Press.
Besley, T., Kudamatsu, M., 2008. Making autocracy work, in: Helpman, E. (Eds.), Institutions and Economic Performance. Harvard University Press, pp. 452-510.
Bourguignon, F., Verdier, T., 2000. Oligarchy, democracy, inequality and growth. Journal of Development Economics, 2, 285-313.
Cervellati, M., Fortunato, P., Sunde, U., 2008. Hobbes to Rousseau: inequality, institutions and development. Economic Journal, 118, 1354-1384.
Cerra, V., Saxena, S.C., 2008. Growth dynamics: the myth of economic recovery. American Economic Review, 98, 439-457.
Chong, A., Gradstein, M., 2007. Inequality and institutions. Review of Economics and Statistics, 89, 454-465.
Dalgic, E., Long, N.V., 2006. Corrupt local governments as resource farmers: the helping hand and the grabbing hand. European Journal of Political Economy, 22, 115-138.
de la Croix, D., Delavallade, C., 2009. Growth, public investment and corruption with failing institutions. Economics of Governance, 10, 187-219.
Deininger, K., Squire, L., 1996. A new data set measuring income inequality. World Bank Economic Review, 10, 565-591.
Deininger, K., Squire, L., 1998. New ways of looking at old issues: inequality and growth. Journal of Development Economics, 57, 259-287.
Dixit, A., Londregan, J., 1996. The determinants of success of special interests in redistributive politics. Journal of Politics, 58, 1132-1155.
Easterly, W., 2001. The middle class consensus and economic development. Journal of Economic Growth, 6, 317-336.
Easterly, W., 2007. Inequality does cause underdevelopment: insights from a new instrument. Journal of Development Economics, 84, 755-776.
Ehrlich, I., Lui, F.T., 1999. Bureaucratic corruption and endogenous economic growth. Journal of Political Economy, 107, 270-293.
Eicher, T., Garcia-Penalosa, C., van Ypersele, T., 2009. Education, corruption, and the distribution of income. Journal of Economic Growth, 14, 205-231.
Engerman, S., Sokoloff, K., 1997. Factor endowments, institutions, and differential paths of growth among new world economies, in: Haber, S. (Eds.), How Latin America Fell Behind. Stanford University Press, pp. 260-304.
Ferejohn, J., 1986. Incumbent performance and electoral control. Public Choice, 50, 5-25.
Forbes, K., 2000. A reassesment of the relationship between inequality and growth. American Economic Review, 90, 869-887.
Galor, O., Zeira, J., 1993. Income distribution and macroeconomics. Review of Economic Studies, 60, 35-52.
Galor, O., Moav, O., Vollrath, D., 2009. Inequality in landownership, the emergence of human-capital promoting institutions, and the great divergence. Review of Economic Studies, 76, 143-179.
Glaeser, E., Scheinkman, J., Shleifer, A., 2003. The injustice of inequality. Journal of Monetary Economics, 50, 199-222.
Gradstein, M., 2007. Inequality, democracy, and the protection of property rights. Economic Journal, 117, 252-269.
Grossman, H.I., Noh, S.J., 1994. Proprietary public finance and economic welfare. Journal of Public Economics, 53, 187-204.
Hall, R.E., Jones, C.I., 1999. Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics, 114, 83-116.
Keefer, P., Knack, S., 2002. Polarization, politics and property rights: links between inequality and growth. Public Choice, 111, 127-154.
Knack, S., Keefer, P., 1995. Institutions and economic performance: cross-country tests using alternative institutional measures. Economics & Politics, 7, 207-227.
Knack, S., Keefer, P., 1997. Does inequality harm growth only in democracies? A replication and extension. American Journal of Political Science, 41, 323-332.
Lindbeck, A., Weibull, J., 1987. Balanced-budget redistribution as the outcome of political competition. Public Choice, 52, 273-297.
Long, V.N., Sorger, G., 2006. Insecure property rights and growth: the role of appropriation costs, wealth effects, and heterogeneity. Economic Theory, 28, 513-529.
Mauro, P., 1995. Corruption and growth. Quarterly Journal of Economics, 110, 681-712.
McGuire, M.C., Olson, M., 1996. The economics of autocracy and majority rule: the invisible hand and the use of force. Journal of Economic Literature, 34, 72-96.
Mohtadi, H., Roe, T.L., 2003. Democracy, rent seeking, public spending and growth. Journal of Public Economics, 87, 445-466.
North, D.C., Weingast, B.R., 1989. Constitutions and commitment: the evolution of institutional governing public choice in seventeenth-century England. Journal of Economic History, 49, 803-832.
Overland, J., Simons, K.L., Spagat, M., 2005. Political instability and growth in dictatorships. Public Choice, 125, 445-470.
Padro i Miquel, G., 2007 The control of politicians in divided societies: the politics of fear. Review of Economic Studies, 74, 1259-1274.
Perotti, R., 1993. Political equilibrium, income distribution, and growth. Review of Economic Studies, 60, 755-776.
Perotti, R., 1996. Growth, income distribution, and democracy: what the data say. Journal of Economic Growth, 1, 148-187.
Persson, T., Tabellini, G., 1994. Is inequality harmful for growth? American Economic Review, 84, 600-621.
Persson, T., Tabellini, G., 2000. Political Economics: Explaining Economic Policy. MIT Press.
Robinson, J.A., Torvik, R., Verdier, T., 2006. Political foundations of the resource curse. Journal of Development Economics, 79, 447-468.
Rodrik, D., Subramanian, A., Trebbi, F., 2004. Institutions rule: the primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9, 131-165.
Shen, L., 2007 When will a dictator be good? Economic Theory, 31, 343-366.
Sokoloff, K., Engerman, S., 2000. Institutions, factor endowments, and paths of development in the new world. Journal of Economic Perspectives, 14, 217-232.
Sonin, K., 2003. Why the rich may favor poor protection of property rights. Journal of Comparative Economics, 31, 715-731.
Tanzi, V., Zee, H.H., 2000. Tax policy for emerging markets: developing countries. National Tax Journal, 53, 299-322.
Wintrobe, R., 1990. The tinpot and the totalitarian: an economic theory of dictatorship. American Political Science Review, 84, 849-872.
Wright, J., 2008. Do authoritarian institutions constrain? How legislatures affect economic growth and investment. American Journal of Political Science, 52, 322-343.
You, J.S., Khagram, S., 2005. A comparative study of inequality and corruption. American Sociological Review, 70, 136-157.
Available Versions of this Item
- Inequality, extractive institutions, and growth in nondemocratic regimes. (deposited 19 Sep 2012 11:40) [Currently Displayed]