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on Business, Economic and Financial History |
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Issue of 2011‒08‒15
27 papers chosen by |
| By: | Ponticelli, Jacopo; Voth, Hans-Joachim |
| Abstract: | Does fiscal consolidation lead to social unrest? From the end of the Weimar Republic in Germany in the 1930s to anti-government demonstrations in Greece in 2010-11, austerity has tended to go hand in hand with politically motivated violence and social instability. In this paper, we assemble cross-country evidence for the period 1919 to the present, and examine the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor. We also analyse interactions with various economic and political variables. While autocracies and democracies show a broadly similar responses to budget cuts, countries with more constraints on the executive are less likely to see unrest as a result of austerity measures. Growing media penetration does not lead to a stronger effect of cut-backs on the level of unrest. |
| Keywords: | demonstrations; Europe; government deficits; instability; public expediture; riots; unrest |
| JEL: | H40 H50 H60 N14 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8513&r=his |
| By: | Raghuram G. Rajan; Rodney Ramcharan |
| Abstract: | The McFadden Act of 1927 was one of the most hotly contested pieces of legislation in U.S. banking history, and its influence was still felt over half a century later. The act was intended to force states to accord the same branching rights to national banks as they accorded to state banks. By uniting the interests of large state and national banks, it also had the potential to expand the number of states that allowed branching. Congressional votes for the act therefore could reflect the strength of various interests in the district for expanded banking competition. We find congressmen in districts in which landholdings were concentrated (suggesting a landed elite), and where the cost of bank credit was high and its availability limited (suggesting limited banking competition and high potential rents), were significantly more likely to oppose the act. The evidence suggests that while the law and the overall regulatory structure can shape the financial system far into the future, they themselves are likely to be shaped by well-organized elites, even in countries with benign political institutions. |
| JEL: | G21 K2 N22 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17266&r=his |
| By: | Carsten Burhop (University of Cologne); David Chambers (University of Cambridge); Brian Cheffins (University of Cambridge) |
| Abstract: | This study of initial public offerings (IPOs) carried out on the Berlin and London stock exchanges between 1900 and 1913 casts doubt on the received �law and finance� wisdom that legally mandated investor protection is pivotal to the development of capital markets. IPOs that resulted in official quotations on the London Stock Exchange performed as well as Berlin IPOs despite the Berlin market being more extensively regulated than the laissez faire London market. Moreover, the IPO failure rate on these two stock markets was lower than it was with better regulated US IPOs later in the 20th century. |
| Keywords: | Law and finance, initial public offering, regulation, investor protection, financial history |
| JEL: | G14 G18 G24 G32 G38 K22 N23 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:wso:wpaper:10&r=his |
| By: | Daudin, Guillaume (Sciences Po) |
| Abstract: | This article tests whether smaller domestic markets can explain why France industrialized more slowly than Britain. To do so, it uses the Tableaux du Maximum. It begins by presenting this source and then checks if the data from the source are plausible using a logit theoretical gravity equation. The results of this gravity equation are then employed to compute the expected market size of specific supply centers. Even if differences in real, nominal, and disposable income are taken into account, some French supply centers had access to domestic markets that were larger than the whole of Britain. |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:ner:sciepo:info:hdl:2441/b0ghejdpldro9c499h4ajc937&r=his |
| By: | Gourinchas, Pierre-Olivier; Obstfeld, Maurice |
| Abstract: | A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first century’s first global crisis. A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced. For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis. |
| Keywords: | banking crisis; Credit boom; currency crisis; emerging markets; leverage; sovereign default |
| JEL: | E44 F32 F34 G15 G21 N10 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8518&r=his |
| By: | Farley Grubb |
| Abstract: | An alternative history of the Continental Dollar is constructed from the original resolutions passed by Congress. The Continental Dollar was a zero-interest bearer bond, not a fiat currency. The public could redeem it at face value in specie at fixed future dates. Being a zero-interest bearer bond, discounting must be separated from depreciation. Before 1779 there was no depreciation, only discounting. In 1779 and again in 1780 Congress passed ex post facto laws which altered the redemption dates of past Continental Dollars in ways that were not fiscally credible. These laws were the turning point. Depreciation and collapse followed. |
| JEL: | E42 E52 G12 G18 H11 H56 H6 H71 N11 N21 N41 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17276&r=his |
| By: | Michael D. Bordo; Hugh Rockoff |
| Abstract: | This paper examines the influence of Irving Fisher’s writings on Milton Friedman’s work in monetary economics. We focus first on Fisher’s influences in monetary theory (the quantity theory of money, the Fisher effect, Gibson’s Paradox, the monetary theory of business cycles, and the Phillips Curve, and empirics, e.g. distributed lags.). Then we discuss Fisher and Friedman's views on monetary policy and various schemes for monetary reform (the k% rule, freezing the monetary base, the compensated dollar, a mandate for price stability, 100% reserve money, and stamped money.) Assessing the influence of an earlier economist's writings on that of later scholars is a challenge. As a science progresses the views of its earlier pioneers are absorbed in the weltanschauung. Fisher's Purchasing Power of Money as well as the work of Pigou and Marshall were the basic building blocks for later students of monetary economics. Thus, the Chicago School of the 1930s absorbed Fisher's approach, and Friedman learned from them. However, in some salient aspects of Friedman's work we can clearly detect a major direct influence of Fisher's writings on Friedman's. Thus, for example with the buildup of inflation in the 1960s Friedman adopted the Fisher effect and Fisher's empirical approach to inflationary expectations into his analysis. Thus, Fisher's influence on Friedman was both indirect through the Chicago School and direct. Regardless of the weight attached to the two influences, Fisher' impact on Friedman was profound. |
| JEL: | B21 B31 N10 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17267&r=his |
| By: | Andrew Mays; Gary S. Shea |
| Abstract: | A new dataset, in the form of a network graph, is used to study inventory and trading behaviour amongst owners of East India Company (EIC) and Bank of England (BoE)stock around the South Sea Bubble. There was a decline in market intermediation in which the goldsmith bankers were dominant in 1720, but foreigners and Jews to some extent restored intermediation services after the Bubble. Company directors temporarily helped to sustain intermediation in 1720 itself. Whereas before and during the Bubble intermediation was largely in the form of brokerage, after the Bubble dealership noticeably began to displace brokerage. |
| Keywords: | South Sea Company; Financial Revolution; social networks, financial intermediation, inventories. |
| JEL: | N23 G13 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1109&r=his |
| By: | Fitoussi, Jean-Paul (Centre de recherche en économie de Sciences Po); Stiglitz, Joseph; , |
| Abstract: | This item has no abstract. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ner:sciepo:info:hdl:2441/5l6uh8ogmqildh09h503jecs2&r=his |
| By: | Carsten Burhop (University of Cologne); Thorsten Luebbers (MPI for Collective Goods Bonn) |
| Abstract: | We investigate a sample of 180 technology licensing contracts closed by German chemical, pharmaceutical, and electrical engineering companies between 1880 and 1913. Our empirical results suggest that strategic behaviour seems to be relevant for the design of licensing contracts, whereas inventor moral hazard and risk aversion of licensor or licensee seem to be irrelevant. Moreover, our results suggest that uncertainty regarding the profitability of licensed technology influenced the design of licensing contracts. More specifically, profit sharing agreements or producer milestones were typically included into licensing contracts. |
| Keywords: | Economic History, Germany, pre-1913, Licensing contracts, Technology transfer. |
| JEL: | N83 O32 L14 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:wso:wpaper:11&r=his |
| By: | Burton A. Abrams (Department of Economics,University of Delaware); James L. Butkiewicz (Department of Economics,University of Delaware) |
| Abstract: | Drawing from the personal tape recordings made during the presidency of Richard Nixon, we uncover and report in this paper new evidence that Nixon manipulated Arthur Burns and the Federal Reserve Bank into creating a political business cycle that helped secure Nixon’s reelection victory in 1972. Nixon understood the risks that his desired monetary policy imposed, but chose to trade longer-term economic costs to the economy for his own short-term political benefit. |
| Keywords: | Monetary Policy; Political Business Cycle |
| JEL: | E5 E3 E58 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:11-05.&r=his |
| By: | Sibylle Lehmann (University of Cologne) |
| Keywords: | Stock Market, Germany, Universal Banks, Dresdner Bank, Deutsche Bank, price competition |
| JEL: | N2 N8 O0 C0 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:wso:wpaper:9&r=his |
| By: | Farley Grubb (Department of Economics,University of Delaware) |
| Abstract: | Remittances of Continental Dollars to the national treasury from each state by year from 1779 through 1789 are used to determine state compliance with congressional resolutions regarding Continental-Dollar redemption. From 1781 through 1789, the states as a whole stayed well ahead of the remittance schedule set by Congress in 1779. Individual state compliance, however, varied considerably. By the time Congress changed redemption requirements with the Funding Act of 4 August 1790, a majority of the net new Continental Dollars ever emitted by Congress had already been redeemed by the states and remitted to the national treasury to be burned. |
| Keywords: | American Revolution; US Constitution; credible commitment; debt retirement; state taxation |
| JEL: | N11 N21 N41 H11 E42 E51 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dlw:wpaper:11-08.&r=his |
| By: | Pereira, Luiz C. Bresser (Luiz Carlos Bresser) |
| Abstract: | This paper surveys the recent literature on modernity and on postmodernity and relates them with the neoliberal ideology that for thirty years was dominant in the world. In relation to modernity, it claims that major sociologists were not neoliberal, but their theories depicted a provisory modernity excessively conditioned by the neoliberal years. In relation to postmodernity, it criticizes its excessive relativism and pessimism, as well as their rejection of the great narratives and of the possibility of progress. |
| Date: | 2011–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:300&r=his |
| By: | Ragazzi Elena (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (TO), Italy); Rolfo Secondo (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (TO), Italy) |
| Abstract: | The competitiveness of a territory is more and more explained by factors that combine technological innovation, recognized as a key element of the competitive advantage of an economic system, with knowledge, creativity, and sometimes even art and culture. In some areas of ancient industrialization we can find at local level a social capital that is a synthesis of economic, social and cultural aspects. This can be used both for the products promotion and for the support to new industries able to offer to the end consumer not only products but the opportunity to carry on an experience with the local tradition. The paper examines two cases of industrial districts in Italy (Biella and Carrara), where the cultural aspect of the traditional manufacturing has been the starting point for enhancing the territorial system and for the beginning of an integrated supply, products-services, which has expanded the boundaries of the previous specialization and it is now a strong element of territorial competitiveness.La compétitivité d’un territoire est de plus en plus expliqué par des facteurs qui associent à l’innovation technologique, depuis longtemps reconnue comme élément de l’avantage compétitif d’un système économique, la connaissance, la créativité et, parfois, même l’art et la culture. On voit ainsi comme dans les territoires d’ancienne industrialisation on retrouve à niveau local une synthèse entre aspects économiques, sociaux et culturels qui représentent un capital utilisable soit pour la promotion sectorielle, soit pour le soutien à la naissance de nouvelles filière capables d’offrir au consommateur final pas seulement un bien, mais la possibilité de faire expérience avec une tradition. Le papier examinera deux cas de districts industriels italiens (Biella et Carrara) où l’aspect culturel de la production traditionnelle a été le point de départ pour une valorisation du système territorial et pour la naissance d’une offre intégrée produits-services qui a élargi les frontières de la précédente spécialisation et représente un élément fort de la compétitivité territoriale. |
| Keywords: | Art et culture, créativité, districts industriels |
| JEL: | O18 R11 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:csc:cerisp:201009&r=his |
| By: | Enrico Spolaore; Romain Wacziarg |
| Abstract: | We document an empirical relationship between the cross-country adoption of technologies and the degree of long-term historical relatedness between human populations. Historical relatedness is measured using genetic distance, a measure of the time since two populations’ last common ancestors. We find that the measure of human relatedness that is relevant to explain international technology diffusion is genetic distance relative to the world technological frontier (“relative frontier distance”). This evidence is consistent with long-term historical relatedness acting as a barrier to technology adoption: societies that are more distant from the technological frontier tend to face higher imitation costs. The results can help explain current differences in total factor productivity and income per capita across countries. |
| JEL: | F43 O33 O57 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17271&r=his |
| By: | Andrés Felipe Giraldo; Martha Misas Arango; Edgar Villa Pérez |
| Abstract: | This article reconstructs the history of monetary policy of the central bank of Colombia in the period 1990 to 2010 in which explicit ination targeting was adopted by October of 2000. To do so we developed theoretically a modi ed Taylor rule with interest rate smoothing for an open and small economy and accordingly estimate a two regime Markov switching model which allows the switching dates to be endogenously determined. We nd that one regime had explicit ination targeting (from the year 2000 up to 2010) in which the ination rate is a stationary series, given that the central bank enforced a monetary policy that satis ed the Taylor principle. This ination stabilizing regime did show up in some quarters before the year 2000 but was not the predominant. The other regime was the more prevalent during the 1990s but did not satisfy the Taylor principle allowing a unit root behavior of the ination rate. Moreover we nd that the central bank reacted aggressively during the 1990s to output uctuations while having an accomodating behavior for this variable during explicit ination targeting from 2000 onwards. |
| Date: | 2011–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000416:008860&r=his |
| By: | Howard Glennerster |
| Abstract: | The distribution of wealth is widening in many countries and with it the importance of inherited wealth. In 1974 a Labour Government came to power in the United Kingdom committed to introducing an annual wealth tax. It left office without doing so. Using the official archives of the time and those of a key advisor this paper traces both the origins of the policy and its fate in Whitehall. It explores two related questions. What does this experience tell us about the role of the civil service in the policy process in the UK and what lessons might be learned by those wishing to tackle the issue of widening wealth disparities today? |
| Keywords: | wealth tax, policy process, UK Treasury |
| JEL: | H27 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:sticas:case147&r=his |
| By: | Crotty, James |
| Abstract: | Rapidly rising deficits at both the federal and state and local government levels, along with long-term financing problems in the Social Security and Medicare programs, have triggered a one-sided austerity-focused class war in the US. Similar class conflicts have broken out around the globe. A coalition of the richest and most economically powerful segments of society and conservative politicians who represent their interests has demanded that deficits be eliminated by public-sector austerity - severe cuts at all levels of government in spending that either supports the poor and the middle class or funds crucial public investment. These demands constitute a deliberate attempt to destroy the New Deal project, begun in the 1930s, whose goal was to subject capitalism to democratic control. The right-wing coalition seeks to replace that project with a modernized version of the 'free-market' capitalism of the 1920s. In this paper I argue that our deficit crisis is the result of a shift from the New-Deal-based economic model of the early post-war period to today's neoliberal, free-market model, a shift initiated under Ronald Reagan and continued under the presidents who succeeded him. The new model has generated slow growth, rising inequality and rising deficits. Rising deficits in turn created demands for austerity. After tracing the long-term evolution of our current deficit crisis, I show that this crisis can be resolved by raising taxes on upper-income households and large corporations, cutting war spending, and adopting a Canadian or European style health care system. There is no need to accept austerity. Calls for austerity should be seen as what they are - an attack by the rich and powerful against the basic interests of the American people. |
| Keywords: | deficit crisis; fiscal crisis; austerity; Social Security crisis; health care crisis |
| JEL: | E62 H60 E60 H6 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32674&r=his |
| By: | Ndlela, Thandinkosi |
| Abstract: | This paper chronicles Zimbabwe’s macroeconomic policies and economic development trends from the post independence period up to end of 2006. By focussing on monetary and exchange rate policies and their influence on economic developments before and after the reform programme in 1991, the paper attempts to reveal the critical macroeconomic policy underpinnings of Zimbabwe’s post-2000 economic tragedy. A key insight from the review is that despite what seemed to be concerted economic management efforts, the authorities actually never succeeded in attaining sustainable economic stabilization goals from the very start of the post-independence era. The constraints imposed by the inward looking policies of the 1980s and the eventual failure of ‘free market’ exchange rate policies of the early 1990s resulted in chronic real exchange rate overvaluation and depletion of foreign exchange reserves. This eventually culminated in the so-called “Black Friday” currency crash, and a severe foreign exchange crisis that has since been viewed as one of the most important factors that led to the economic tragedy. Hence in retrospect, the review concludes that the post-independence government in Zimbabwe never succeeded in bringing the economy into long term structural equilibrium and, thus failed to create an enabling environment for medium to long term macroeconomic policy sustainability. |
| Keywords: | Zimbabwe; exchange rate misalignment; macroeconomic policy; economic crisis |
| JEL: | E5 F31 F43 |
| Date: | 2011–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32703&r=his |
| By: | Dalton, John T.; Leung, Tin Cheuk |
| Abstract: | Polygyny rates are higher in Western Africa than in Eastern Africa. The African slave trades explain this difference. More male slaves were exported in the trans-Atlantic slave trades from Western Africa, while more female slaves were exported in the Indian Ocean and Red Sea slave trades from Eastern Africa. The slave trades led to prolonged periods of abnormal sex ratios, which impacted the rates of polygyny across Africa. In order to assess these claims, we construct a unique ethnicity-level data set linking current rates of polygyny with historical trade flow data from the African slave trades. Our OLS estimates show a positive correlation between the trans-Atlantic slave trades and polygyny. An IV approach shows the relationship is causal and statistically signicant. We also provide cross-country evidence corroborating our findings. |
| Keywords: | slave trades; polygyny; Africa; development |
| JEL: | O55 F14 J12 N17 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32598&r=his |
| By: | Adolfo Meisel Roca |
| Abstract: | En este trabajo se hace un cálculo del producto interno bruto, PIB, de la República de Nueva Granada en 1846. Así mismo, para ese año también se presenta la estructura del empleo, clasificado por las principales ocupaciones, y la composición y valor de la riqueza material. Para ello nos basamos en un censo económico nacional realizado en 1846 y que hasta la fecha no ha sido utilizado por los historiadores económicos. En dicho censo se recopilaron las cifras de la producción agropecuaria, industrial, pesquera y minera. A partir de esa producción del sector primario, que representaba para la época más de dos terceras partes del valor de la producción total, se calculó el PIB. Este enfoque es más conveniente que calcularlo a partir de las exportaciones o el ingreso del gobierno, pues estas últimas variables son más volátiles que la producción del sector primario. El PIB per cápita que obtuvimos para 1846 fue de 23 pesos de plata de la época, lo cual implica que alcanzaba a ser solo el 22,9% del de Estados Unidos y estaba por debajo del de los principales países latinoamericanos. |
| Date: | 2011–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000101:008892&r=his |
| By: | Nora Lustig (Department of Economics, Tulane University) |
| Abstract: | Celebrated by academics, multilateral organizations, policy-makers and the media, Mexico’s Progresa/Oportunidades conditional cash transfers program (CCT) is constantly used as a model of a successful anti-poverty program. Here I argue that the transformation of well-trained scholars into influential practitioners played a fundamental role in promoting a new conceptual approach to poverty reduction, ensuring the technical soundness and effectiveness of the program, incorporating rigorous impact evaluation, and persuading politicians to implement and keep the program in place. The involvement of scholars-practitioners also helped disseminate the new CCT "technology" to many countries around the world within a decade. |
| Keywords: | anti-poverty programs, conditional cash transfers, scholars, practitioners, Progresa, Oportunidades, Mexico |
| JEL: | H3 H53 I3 O2 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1123&r=his |
| By: | B. G. Sharma; Sadhana Agrawal; Malti Sharma; D. P. Bisen; Ravi Sharma |
| Abstract: | The conventional economic approaches explore very little about the dynamics of the economic systems. Since such systems consist of a large number of agents interacting nonlinearly they exhibit the properties of a complex system. Therefore the tools of statistical physics and nonlinear dynamics has been proved to be very useful the underlying dynamics of the system. In this paper we introduce the concept of the multidisciplinary field of econophysics, a neologism that denotes the activities of Physicists who are working on economic problems to test a variety of new conceptual approaches deriving from the physical science and review the recent developments in the discipline and possible future trends. |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1108.0977&r=his |
| By: | Kwon, O Hyun (Peking University); Fleisher, Belton M. (Ohio State University); Deng, Quheng (Chinese Academy of Social Sciences) |
| Abstract: | Industry mean wages in China have exhibited sharply increased dispersion since the early 1990s. The upward trend in differences of average wages among major industry groups parallels increases in wage and income inequality not only between rural and urban sectors but within the urban economy as well. Research on the trend has focused on (1) how market forces have led to a better match between worker pay and worker skills; on (2a) how the growing share of employment in the private sector has “caused” growing wage inequality; and (2b) how residual government control in a few industrial sectors has contributed to wage inequality due monopoly rent sharing. We show that the industrial wage dispersion in China has evolved to match long-recognized international patterns of industrial wage dispersion and that an increasing proportion of industrial wage dispersion can be explained as returns to observed worker characteristics. |
| Keywords: | industry-wage structure, inequality, China |
| JEL: | J31 D33 L16 O53 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5880&r=his |
| By: | Gary S. Shea |
| Abstract: | A social network of stock trading is defined for the notorious South Sea Bubble of 1720. It is a flow network defined in terms of pass-through and core pass-through, which have convenient properties with respect to inventories. These are all useful concepts when examining a liquidity crisis, financial intermediation and the changing social structure of trade. We find that there may have been a liquidity crisis suffered by goldsmith bankers before the Bubble, a gradual path towards dis-intermediation after the Bubble and a switch from intermediation based upon brokerage to intermediation based upon dealership. |
| Keywords: | East India Company; South Sea Company; Bank of England; social networks; financial intermediation; inventories; liquidity. |
| JEL: | N23 G13 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1110&r=his |
| By: | Giacomo De Luca; Petros G. Sekeris; Juan F. Vargas |
| Abstract: | We propose a model where an autocrat rules over an ethnically divided society. The dictator selects the tax rate over domestic production and the nation's natural resources to maximize his rents under the threat of a regime-switching revolution. We show that a weak ruler may let the country plunge in civil war to increase his personal rents. Inter-group fighting weakens potential opposition to the ruler, thereby allowing him to increase fiscal pressure. We show that the presence of natural resources exacerbates the incentives of the ruler to promote civil conflict for his own profit, especially if the resources are unequally distributed across ethnic groups. We validate the main predictions of the model using cross-country data over the period 1960-2007, and show that our empirical results are not likely to be driven by omitted observable determinants of civil war incidence or by unobservable country-specific heterogeneity. |
| Date: | 2011–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:008893&r=his |