Essays on Economic Conditions for Democratization

Loh, Joyce Chia-Heng

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Citeable URL: https://scholar.colorado.edu/concern/graduate_thesis_or_dissertations/m900nt45t

Abstract

I investigate under what economic conditions democratization would be adopted in oligarchic societies in the absence of social conflict and political competition. In each essay, I construct a general equilibrium model of a delegation game and characterize the conditions in terms of economic primitives. I show that democratization occurs when there is a net positive spillover to the elite's payoff. The benchmark delegation game considers the oligarchic regime and the democratic regime. At the status quo, the elite are entrusted with the political power over a tax policy. They decide either to sustain the power under the oligarchic regime or to delegate the power to people so that democratization occurs and the society goes under the democratic regime. The first essay considers an environment with education. Under the oligarchic regime, the elite appropriate people's labor income. The tax decreases people's incentive to receive education and to work. The economy grows poor, and the tax revenue may be limited. Under the democratic regime, people remove the tax distortion. They pursue education and work hard, which increase the elite's capital return. Democratization would be adopted if the elite receive sufficient capital return under the democratic regime, or collect small labor income tax revenue under the oligarchic regime. The second essay considers the presence of home production and non-exclusive public goods. Under the oligarchic regime, home production weakens the elite's appropriation on people's labor income received from market production. Under the democratic regime, people impose a capital gain tax on the elite to finance for non-exclusive public goods. Democratization would be adopted if the elite impose a small labor income tax under the oligarchic regime, or people provide abundant labor supply and impose a reasonable capital gain tax on the elite under the democratic regime. The third essay considers a two-period economy in the absence of commitment. Under the oligarchic regime, the elite impose a savings tax on people after observing their savings behavior. When people save, the elite expropriate their saving. Under the democratic regime, the tax distortion is removed and the efficiency of the economy is improved. Democratization would be adopted if the prosperous economy increases the elite's purchasing power.

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