Resource Abundance, Political Corruption, and Instability of Democracy

41 Pages Posted: 19 Apr 2011

See all articles by Victor Polterovich

Victor Polterovich

Russian Academy of Sciences (RAS) - Laboratory "Mathematical Economics"

Vladimir Popov

Central Economics and Mathematics Institute (CEMI); New Economic School (NES)

Alexander Tonis

affiliation not provided to SSRN

Date Written: 2007

Abstract

In this paper we analyze data on sustainability of democratic regimes in resource rich countries and suggest a model to explain why resource abundance may lead to instability of democracy in some countries, but does not create any difficulties for a democratic system in other ones. Rate of resource rent tax is considered as the only policy instrument in our simple model. The tax affects the income of a representative voter. Choosing a tax rate, Autocrat competes with conventional Politician (a representative political party) for the office. Our model demonstrates the existence of a threshold for propensity to corruption (a measure of the institutional quality). The probability of the democracy preservation is decreasing in the amount of resources if the propensity is high and is independent of resources or even grows with the amount of resources if the propensity is low. It is shown also that Autocrat may use two types of policies depending on the qualities of governance (abilities to allocate tax revenues without big losses) that the public assigns to her and to Politician. More efficient Autocrat is inclined to follow populist high tax policy whereas lower Autocrat’s efficiency results in pro-Oligarch low tax policy when the country is resource abundant.

Keywords: Democracy, resource abundance, corruption

JEL Classification: P16

Suggested Citation

Polterovich, Victor and Popov, Vladimir and Tonis, Alexander, Resource Abundance, Political Corruption, and Instability of Democracy (2007). Available at SSRN: https://ssrn.com/abstract=1814165 or http://dx.doi.org/10.2139/ssrn.1814165

Victor Polterovich (Contact Author)

Russian Academy of Sciences (RAS) - Laboratory "Mathematical Economics" ( email )

Russia

Vladimir Popov

Central Economics and Mathematics Institute (CEMI) ( email )

Nakhimovsky Prospect 47
Moscow, 117418
Russia

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Alexander Tonis

affiliation not provided to SSRN ( email )

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