Why Brennan and Buchanan are wrong (after all)

In their book The Power to Tax, Brennan and Buchanan have pointed to a central weakness of the traditional theory of public finance and especially of the theory of optimal taxation: This approach overlooked the problem of governmental power and the tendency of this power to be abused. It was important to demonstrate how grossly misleading the optimal taxation theory appears to be once the problem of power is considered. Nevertheless, Brennan and Buchanan's suggestions for constitutional rules are no less misleading, after all. Technically speaking, the public-policy implications of their approach are only valid under extremely unrealistic assumptions. What is worse: Shifting these assumptions somewhat closer to reality does not just reduce the extent to which the public-policy implications of their approach are true but rather turns them completely upside down. Hence, Barry Weingast's (1993, p. 287) fundamental trade off, according to which a 'government strong enough to protect property rights is also strong enough to confiscate the wealth of its citizens', remains unsolved. --public choice,optimal taxation,Leviathan theory,elasticity of tax bases,constitutional economics

Why is there no revolution in North-Korea? The political economy of revolution revisited

In this paper the political economy of revolutions is revisited, as it has been developed and applied in a number of publications by Acemoglu and Robinson. We criticize the fact that these authors abstract from collective-action problems and focus on inequality of income or wealth instead. In doing so, they reanimate a long but misleading tradition in social sciences, namely to directly deduct prospective group behavior from the collective interest of a group. We show that, because of collective-action problems, income inequality is not a sufficient condition for a revolution to occur. Furthermore, we also show that inequality does not even need to be a necessary condition, since all what is needed in order for a group to be interested in a revolution is that this group as a whole can expect to be a beneficiary of a revolution. For the latter to apply, however, inequality is not necessary. Hence, not inequality but rather a certain structure of commitment devices or their absence is crucial for explaining why revolutions sometimes occur and sometimes not. --Credible Commitments,Dictatorship,Political Economy,Redistribution

Democracy and prosperity in two decades of transition

This paper revisits the relation between democracy, liberalization, and prosperity in transition countries, using a panel of 25 countries over 19 years. Earlier investigations found political and economic liberalization to be positively correlated whereas the relation between political liberalization and prosperity remained unclear. In this paper, a hump-shaped relationship between political liberalization and growth is found, such that a rise in democracy levels promotes growth only under initially low democracy levels. Furthermore, economic and political liberalization turn out to be positively related, but with surprisingly small coefficients. --Transition Economics,Public Choice,Democracy,Growth

Abused rebels and winning coalitions: Regime change under the pressure of rebellions

We hypothesize that, in certain regime types, winning coalitions have an incentive for helping a deprived population solving the collective action problem that may otherwise restrain them in revolting against an incumbent. Recent selectorate literature holds that members of a winning coalition may find themselves in a loyalty trap after having realized a bad character of an incumbent. According to our hypothesis, the winning coalition's members can find a way out of the loyalty trap by influencing expectations within the population in a way as to spark a public rebellion. A thus induced rebellion raises the chance of each of the winning coalition's members for preserving their position in a newly formed winning coalition following a regime change. Hence, the very regime structure that makes a loyalty trap more probably is identical to a regime structure under which we should expect a higher vulnerability to public rebellions

Toward a more general approach to political stability in comparative political systems

This paper provides a general framework for analyzing political (in)stability in comparative political systems. It distinguishes different subgroups of a society, some of which have a potential for pursuing a redistribution of wealth in its broadest sense via constitutional or non-constitutional government overturns. Political instability implies a cycle of overturns and redistributions with no stable equilibrium. It will be shown that individual incentives for participating in overturn attempts hinge not upon specific distributions of wealth but are rather dependent on the respective structure and credibility of promises and threats within and across the different subgroups of the society. What is more, without credible commitments of the incumbent governments to a carrot-and-stick policy there will be the danger of endless over-turn and redistribution cycles, leading to failed states. For much the same reason, democratic constitutions contain effective measures against redistribution cycles. Stability within non-democracies, by contrast, can be explained by the fact that commitments among potential re-bels cannot be backed by formal institutions, whereas incumbent governments can use their legal surrounding for developing institutions that, in turn, help them to embed potentially threatening societal groups into a system of carrot and stick

The supply of democracy explaining voluntary democratic transition

The theory presented in this paper explains democratic transitions on the basis of rentmaximizing political leaders that aim at improving the credibility of post-constitutional policy making by way of introducing a decentralized democratic politico-institutional structure. They face an incentive for doing so if such a structure is a precondition for Schumpeterian growth processes, as this raises opportunities for trading a part of the political leader's power potential against future political rents stemming from an enhanced macroeconomic income base. While a differentiated and decentralized politico-institutional setting to unfold its desired economic effects requires the political leaders to effectively respect the independence of decentralized political agencies, announcements to do so may not be credible. Hence, the conditions under which credibility can be reached are analyzed. As far as political leaders have an incentive to formally introduce democratic institutions and, additionally, as far as they are able to credibly commit to the effective independence of decentralized governmental agencies, they can be expected to voluntarily supply democracy

Youth bulges, insurrections, and politico-economic institutions

We develop a simple model of an insurrection market based on a kleptocratic politico-economic institutional setting, within which a certain government elite holds both all central government position and all productive assets. The kleptocratic setting provokes the appearance of insurrection entrepreneurs that are called the revolutionary elite and that aim at redistributing wealth away from the government elite. To that end, the revolutionary elite hires insurrection activists and compensates them in cash or in kind. We integrate the youth bulge measured by the relative youth cohort size into the insurrection market by defining certain youth-specific characteristics that influence relative productivities on the insurrection market as compared to an official labor market. We find that, apart from certain spontaneous outbreaks of violence or riots, youth bulges alone are not a good predictor for political violence. Moreover, deliberate insurrection activities that aim at changing political and economic power positions are affected by youth bulges only when related to certain politico-economic institutional settings, from which kleptocracies may be the most vulnerable

Democracy and prosperity in two decades of transition

This paper revisits the relation between democracy, liberalization, and prosperity in transition countries, using a panel of 25 countries over 19 years. Earlier investigations found political and economic liberalization to be positively correlated whereas the relation between political liberalization and prosperity remained unclear. In this paper, a hump-shaped relationship between political liberalization and growth is found, such that a rise in democracy levels promotes growth only under initially low democracy levels. Furthermore, economic and political liberalization turn out to be positively related, but with surprisingly small coefficients