Inequality, extractive institutions, and growth in nondemocratic regimes

Nobuhiro Mizuno (), Katsuyuki Naito and Ryosuke Okazawa ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Dictatorship; Economic Growth; Inequality; Institutions (search for similar items in EconPapers)
JEL-codes: D31 O11 P16 (search for similar items in EconPapers)
Date: 2012-08-06
New Economics Papers: this item is included in nep-fdg and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Inequality, extractive institutions, and growth in nondemocratic regimes (2017)
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