The Natural Economic Advantage of Dictatorship over Democracy: A “Gresham's Law” of Governance

We show that when democratic and autocratic governments peacefully compete for governance over the same jurisdiction the autocratic has a natural advantage. The autocratic government, which unambiguously reduces welfare for everyone except the autocrat, will drive the competing democratic government to voluntarily shut down in the interests of its own electorate. For instance, if an autocratic government allows the creation of democratic local governments, with the authority to tax and spend at will, these democratic local governments will remain inert and ineffective: A “Gresham's Law of Political Economy.” Copyright Kluwer Academic Publishers 2002