Protecting Property: The Politics of Redistribution, Expropriation, and Market Openness

Protecting Property: The Politics of Redistribution, Expropriation, and Market Openness This paper develops a formal model to disentangle the competing political incentives for redistribution, expropriation, and market openness. Although redistribution and expropriation are both types of government extraction, redistribution re‐allocates wealth within the citizenry, while expropriation re‐allocates wealth from citizens to the government. Representative political institutions increase redistribution and reduce expropriation. Market openness changes these incentives, as foreign investors prefer reductions in both redistribution and expropriation. When political institutions are representative, the government will rely more on reducing expropriation, rather than limiting redistribution, to attract foreign investment. Under representative institutions then, openness partially reinforces the preferences of voters rather than undermining them. In addition, market liberalization occurs only when the policy changes needed to attract foreign investment are relatively small. If existing policies are satisfactory to foreign investors, moves toward openness may be accompanied by greater redistribution and expropriation, as governments are tempted by a larger base for extraction. Thus, openness has ambiguous effects on economic policy, at times encouraging and at times constraining extraction. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics & Politics Wiley

Protecting Property: The Politics of Redistribution, Expropriation, and Market Openness

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Publisher
Wiley
Copyright
Copyright © 2018 John Wiley & Sons Ltd
ISSN
0954-1985
eISSN
1468-0343
D.O.I.
10.1111/ecpo.12106
Publisher site
See Article on Publisher Site

Abstract

This paper develops a formal model to disentangle the competing political incentives for redistribution, expropriation, and market openness. Although redistribution and expropriation are both types of government extraction, redistribution re‐allocates wealth within the citizenry, while expropriation re‐allocates wealth from citizens to the government. Representative political institutions increase redistribution and reduce expropriation. Market openness changes these incentives, as foreign investors prefer reductions in both redistribution and expropriation. When political institutions are representative, the government will rely more on reducing expropriation, rather than limiting redistribution, to attract foreign investment. Under representative institutions then, openness partially reinforces the preferences of voters rather than undermining them. In addition, market liberalization occurs only when the policy changes needed to attract foreign investment are relatively small. If existing policies are satisfactory to foreign investors, moves toward openness may be accompanied by greater redistribution and expropriation, as governments are tempted by a larger base for extraction. Thus, openness has ambiguous effects on economic policy, at times encouraging and at times constraining extraction.

Journal

Economics & PoliticsWiley

Published: Jan 1, 2018

Keywords: ; ; ; ; ; ; ; ;

References

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