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The Natural Economic Advantage of Dictatorship over Democracy: A “Gresham's Law” of Governance

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  • Omar Azfar
  • Martin Mcguire

Abstract

We show that when democratic and autocratic governments peacefully compete for governance over the same jurisdiction the autocratic has a natural advantage. The autocratic government, which unambiguously reduces welfare for everyone except the autocrat, will drive the competing democratic government to voluntarily shut down in the interests of its own electorate. For instance, if an autocratic government allows the creation of democratic local governments, with the authority to tax and spend at will, these democratic local governments will remain inert and ineffective: A “Gresham's Law of Political Economy.” Copyright Kluwer Academic Publishers 2002

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  • Omar Azfar & Martin Mcguire, 2002. "The Natural Economic Advantage of Dictatorship over Democracy: A “Gresham's Law” of Governance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 451-463, August.
    • Handle: RePEc:kap:itaxpf:v:9:y:2002:i:4:p:451-463
    DOI: 10.1023/A:1016520104397
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    References listed on IDEAS

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    1. Martin C. McGuire & Mancur Olson, 1998. "The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force," International Economic Association Series, in: Silvio Borner & Martin Paldam (ed.), The Political Dimension of Economic Growth, chapter 3, pages 38-73, Palgrave Macmillan.
    2. Wintrobe,Ronald, 2000. "The Political Economy of Dictatorship," Cambridge Books, Cambridge University Press, number 9780521794497, September.
    3. Olivier Blanchard & Andrei Shleifer, 2001. "Federalism With and Without Political Centralization: China Versus Russia," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-8.
    4. Roger Congleton, 2001. "On the Durability of King and Council: The Continuum Between Dictatorship and Democracy," Constitutional Political Economy, Springer, vol. 12(3), pages 193-215, September.
    5. Olson, Mancur, 1993. "Dictatorship, Democracy, and Development," American Political Science Review, Cambridge University Press, vol. 87(3), pages 567-576, September.
    6. Wintrobe, Ronald, 1990. "The Tinpot and the Totalitarian: An Economic Theory of Dictatorship," American Political Science Review, Cambridge University Press, vol. 84(3), pages 849-872, September.
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    Cited by:

    1. Óscar Gutiérrez & Marco Martínez-Esteller, 2022. "Tax collection in the Roman Empire: a new institutional economics approach," Constitutional Political Economy, Springer, vol. 33(3), pages 378-401, September.
    2. Omar Azfar, 2006. "The New Institutional Economics Approach to Economic Development: A Discussion of Social, Political, Legal, and Economic Institutions," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 965-980.

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