Causes and Consequences of Political Competitiveness

with Kevin Tsui

Abstract

Political competitiveness – which many interpret as the degree of democracy – can be modeled as monopolistic competition. All regimes are constrained by the threat of "entry," and thereby seek some combination of popular support and political entry barriers. This simple model predicts that many public policies are unrelated to political competitiveness, and that even nondemocratic regimes should tax far short of their Laffer curve maximum. Since entry barriers are a form of increasing returns, democratic countries (defined according to low entry barriers) are more likely to subdivide, nondemocratic countries are more likely to merge, and nondemocratic mergers are more likely to be violent. The "size of the market" encourages competition, which implies that economic development and total population should foster democracy, at least according to some measures. Economic sanctions hasten regime turnover, but increase the oppressiveness of the regimes in power after the takeover. These and other predictions are consistent with previous empirical findings on comparative public finance, international conflict, the size of nations, and the Lipset hypothesis.

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