Autocracy, Democracy and Trade Policy

Sebastian Galiani and Gustavo Torrens

No 19321, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D72 D78 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-cdm and nep-pol
Note: DEV
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Citations: View citations in EconPapers (2)

Published as Galiani, Sebastian & Torrens, Gustavo, 2014. "Autocracy, democracy and trade policy," Journal of International Economics, Elsevier, vol. 93(1), pages 173-193.

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