Political equality, coalition formation, and economic performance in autocracies

Abstract Autocracies have diverse records of economic growth. This paper provides a theory of endogenous coalition formation to explain economic performance in autocracy. The nature of the ruling coalition that the autocrat relies on to rule the society and extract rents affects the degree of inclusiveness of the autocracy's political and economic institutions that ultimately determines economic performance. A stable ruling coalition has to be invasion-proof --- i.e., being able to resist invasion from outside --- and coalition-proof --- i.e., being able to prevent split from inside. In a political environment where side payments are allowed to buy political support, a ruling coalition is coalition-proof if and only if it satisfies Condition E, i.e., every pair of its member groups holds similar levels of political power relative to the power of any third group (including the autocrat). When more pairs of groups satisfy Condition E in a society, the ultimate ruling coalition becomes more inclusive and societal output is increased.