Autocracy, Democracy and Trade Policy

Abstract

This paper develops a politico-economic model for use in studying the role of intra-elite conflict in the simultaneous determination of a country's political regime, trade policy and income-tax-based redistribution scheme. Three socioeconomic groups are involved: two elite groups and workers, whose preferences regarding trade policy and income taxation are derived from a simple open-economy model. The critical point is that income taxation induces a rich-poor/elite-workers political cleavage, while trade policy opens the door to intra-elite conflict. In this model, when there is no intra-elite conflict, changes in trade policy are associated with political transitions. Coups (democratizations) open up the economy if and only if both elite factions are pro-free-trade (protectionist). However, in the presence of intra-elite conflict, autocracies respond to popular revolts by changing trade their policy and reallocating political power within the elite (to the elite group with the same trade policy preference as the workers) rather than offering to democratize the country. The change in trade policy is credible because the elite group with the same trade policy preference as the workers controls the autocracy. Moreover, in the presence of intra-elite conflict, coups tend to result in the maintenance of the existing trade policy unless popular demands are extremely radical and/or the elite group with the same trade policy preference as the workers is exceptionally weak. AbstractThis paper develops a politico-economic model for use in studying the role of intra-elite conflict in the simultaneous determination of a country's political regime, trade policy and income-tax-based redistribution scheme. Three socioeconomic groups are involved: two elite groups and workers, whose preferences regarding trade policy and income taxation are derived from a simple open-economy model. The critical point is that income taxation induces a rich-poor/elite-workers political cleavage, while trade policy opens the door to intra-elite conflict. In this model, when there is no intra-elite conflict, changes in trade policy are associated with political transitions. Coups (democratizations) open up the economy if and only if both elite factions are pro-free-trade (protectionist). However, in the presence of intra-elite conflict, autocracies respond to popular revolts by changing trade their policy and reallocating political power within the elite (to the elite group with the same trade policy preference as the workers) rather than offering to democratize the country. The change in trade policy is credible because the elite group with the same trade policy preference as the workers controls the autocracy. Moreover, in the presence of intra-elite conflict, coups tend to result in the maintainance of the existing trade policy unless popular demands are extremely radical and/or the elite group with the same trade policy preference as the workers is exceptionally weak.JEL Classification: D72, D78.1 politico-economic model of autocracy and democr...

Oligarchies and Development in a Global Economy: A Tale of Two Elites

“…In the same vein, Galiani and Torrens (2014) provide a rich model where different types of elites reallocate political power within their clique to avoid popular revolts. We consider two economies that differ only with respect to the endowments of the oligarchs, who may hold either land or capital.…”

“…See for instance Levchenko (2013) for a framework with political lobbying or Galiani and Torrens (2014) for a model of conflict between the elites. See for instance Levchenko (2013) for a framework with political lobbying or Galiani and Torrens (2014) for a model of conflict between the elites.…”

“…Within this literature, more specific forms of imperfect political institutions include expropriation (Segura-Cayuela 2006;Stefanadis 2010;Albornoz, Galiani, and Heymann 2012) and inequality in land ownership (Galor, Moav, and Vollrath 2009;Falkinger and Grossman 2013). products has strengthened the political power of large exporters who subsequently have raised barriers to entry and promoted elite institutions. Galiani and Torrens (2014) introduce trade policy as a political cleavage between different types of elites. Galiani and Torrens (2014) introduce trade policy as a political cleavage between different types of elites.…”