On Dictatorship, Economic Development and Stability

intertemporal utility. The income tax rate chosen by the dictator, τt , is the solution to
its maximization program:

max U = V  --g—---,

gt       t=0 (1 - σ)(1 + ρ)^t

subject to,

gt = qtτt Ak_t^α

ln[(1 - τ_t+1)] + ln[(1 - q_t+1)τ_t+1Ak_t^α₊₁ + l] - ln l > 0.               (13)

kt+1 = i + β^{(1 - τ}t^{)(1 - α})Ak^{α                       (14)}

0 6 qt 6 1                                    (15)

Equation (12) is the dictator’s budget constraint. Equation (13) represents the no-
insurrection constraint and equation (14) is an implementation (binding) constraint, de-
scribing how households react to the dictator’s choice of tax rate. Equation (15) indicates
the feasible values for q .

Thus, the behavior of the dictator depends on two exogenous preference parameters (σ
and ρ) and three endogenous variables (τ, q and k).

be the case. This would diminish the effect of the implementation constraint and hence would increase
his predatory appetite, if he were certain to rely on these foreign funds and their returns later on.

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