A THEORY OF KLEPTOCRACY WITH PROBABILISTIC SURVIVAL AND REPUTATION*

Herschel Grossman and Suk Jae Noh

Economics and Politics, 1990, vol. 2, issue 2, 157-171

Abstract: We develop a positive theory of kleptocracy, in which the incumbent ruler's concern about his survival probability can induce him to pursue relatively benevolent policies. But, this effect can lower the equilibrium tax rate only until the time‐consistency requirement becomes a binding constraint on the equilibrium tax rate. The minimum time‐consistent tax rate in a reputational equilibrium is lower the more that the ruler values prospective future revenues, but the value of prospective future revenues itself depends on the ruler's survival probability. The analysis reveals that, if a relatively benevolent tax policy is both necessary and sufficient for a high survival probability, then equilibrium tax policy is relatively benevolent. Until two or three hundred years ago, it was characteristic almost

Date: 1990
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