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Macro Shocks, Regulatory Quality and Costly Political Action

Paul Maarek (), Michael Dorsch () and Karl Dunz
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Michael Dorsch: The American University of Paris

No 2012-41, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: We build a theory of political turnover in autocracies where citizens can only express their political preferences to remove the autocrat through costly mass protest. The disenfranchised are imperfectly informed about the autocrat's choice of economic institution. Workers only observe economic outcomes that could result from rent-extracting economic regulations or adverse economic shocks. The disenfranchised have priors about the autocrat's type and, by extension, policy choices. We propose that macro shocks can affect the cost-benefit calculus of costly political action through an informational channel. For an autocrat that has implemented hidden rent-seeking regulation, negative shocks reduce the perceived probability that the autocrat is benevolent, and increase the probability of opposition. We then empirically investigate this idea for a panel of autocratic countries. Using simple linear probability and logit models with fixed effects and using weather variables as instruments for macro shocks, we demonstrate that adverse economic shocks increase the probability of mass protest episodes only in countries with bad regulations.

JEL-codes: D74 D81 P48 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-pol
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