Autocracy, Democracy and Trade Policy

66 Pages Posted: 3 Jul 2013 Last revised: 11 Feb 2014

See all articles by Sebastian Galiani

Sebastian Galiani

University of Maryland - Department of Economics

Gustavo Torrens

Indiana University

Multiple version iconThere are 3 versions of this paper

Date Written: November 1, 2013

Abstract

This paper develops a politico-economic model for use in studying the role of intra-elite conflict in the simultaneous determination of a country’s political regime, trade policy and income-tax-based redistribution scheme. Three socioeconomic groups are involved: two elite groups and workers, whose preferences regarding trade policy and income taxation are derived from a simple open-economy model.The critical point is that income taxation induces a rich-poor/elite-workers political cleavage, while trade policy opens the door to intra-elite conflict. In this model, when there is no intra-elite conflict, changes in trade policy are associated with political transitions. Coups (democratizations) open up the economy if and only if both elite factions are pro-free-trade (protectionist). However, in the presence of intra-elite conflict, autocracies respond to popular revolts by changing trade their policy and reallocating political power within the elite (to the elite group with the same trade policy preference as the workers) rather than offering to democratize the country. The change in trade policy is credible because the elite group with the same trade policy preference as the workers controls the autocracy. Moreover, in the presence of intra-elite conflict, coups tend to result in the maintenance of the existing trade policy unless popular demands are extremely radical and/or the elite group with the same trade policy preference as the workers is exceptionally weak.

Suggested Citation

Galiani, Sebastian and Torrens, Gustavo, Autocracy, Democracy and Trade Policy (November 1, 2013). Available at SSRN: https://ssrn.com/abstract=2288791 or http://dx.doi.org/10.2139/ssrn.2288791

Sebastian Galiani (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Gustavo Torrens

Indiana University ( email )

Wylie Hall, 100 S Woodland Ave
Bloomington, IN 47405-7104
United States
8128568131 (Phone)

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