Tariff Revenues Matter for Democratization : Theory and Evidence From the First Wave of Globalization

Do tariff revenues affect democratization? We argue that tariff revenues have two effects: i) A rapacity effect because the fiscal windfalls generate incentives to control government, and ii) A redistributive effect because tariffs impact the returns to the factors of production, changing the distribution of power between politically-relevant groups. If ruling elites benefit from redistribution, this discourages a challenge to their rule. If elites lose from redistribution, they may share power to avoid expropriation. We test these claims during the First Wave of Globalization, when ruling elites were often landed. We find causal evidence that tariff revenues reduce democratization in land-abundant economies because ruling elites strengthen via the redistributive effect, as the return to land increases, and the windfalls bolster the rapacity effect. In capital-abundant economies the return to land falls, thus the redistributive effect offsets the rapacity effect. Congruently, we find a positive but statistically-insignificant effect for tariff revenues