On Dictatorship, Economic Development and Stability

state point of dictatorship. The threat of insurrection has therefore three implications.
First, it can improve the utility of the consumers by constraining the distribution of the
tax revenues between them and the dictator. Second, it contributes to economic devel-
opment by influencing the choice of a more economically sustainable tax rate. Finally,
it represents the limit to the dictator’s power by making unstable some of the (socially)
worst possible preferences of the dictator.

4.2 Local stability

Proposition 4 The local stability of the interior steady state of any form of politically
stable dictatorship depends on the dictator’s preference parameters (the elasticity of sub-
stitution, σ, and the time preference, ρ), the initial level of social order, l, and the pro-
ductivity level, A.

Proof: see appendix B

In contrast with the situation without insurrection threat, Proposition 4 points out that
some dictatorships, even though satisfying the political constraint, may not have a lo-
cally stable steady state. Depending on the parameters, the steady state may be locally
stable, locally saddle-path stable or unstable. This proposition shows the large variety of
situations a dictator may face.

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