wealth from forceful redistribution (Acemoglu and Robinson, 2000) or destruction (Feng and
Zak, 1999) by revolutionaries, then they have to give up its political power. Both approaches
capture certain features of non-democratic regimes but cannot explain the durability of
numerous “predatory” regimes that extract rents from the population and are characterized by
high inequality. The assumption of unchallenged power of the dictator in McGuire and Olson
(1996) simply bypasses the problem of the regime stability by leaving no active role to the
population.
For a rational, net-revenue maximizing ruler, who only uses political power as an
instrument of revenue-collection, public expenditure is simply a tax refund that makes the
population better off, while reducing political rents.3 Associated transaction costs will
normally make the net welfare effect strictly negative. If we follow consistently the positive
perspective and allow for economic rationality of all involved agents, then we have to look
for less costly, in terms of power and rents, mechanisms of raising support. Hierarchical
political organization creates one such mechanism that allows for “borrowing” services and
political support of activists in exchange for deferred promotion into of the ruling stratum. In
this paper, I develop a model of a hierarchical regime that is based on an implicit promotion
contract. Stability of this type of a regime is consistent with large income gaps between the
rulers and the rest of the population, and active government investment in physical capital,
while the rate of economic growth and provision of public goods have no direct effect on the
support for the regime.
3 Defense and criminal law enforcement seem to be important exceptions. However, these can be
considered as a part of the costs associated with revenue production, insofar as they protect the tax
base from rival predators (foreign aggressors and domestic bandits).