Wealth Destroying States

Authors: Ilia and Jennifer Murtazashvili

Published in Public Choice (2020). Vol. 182, pp. 353-371.

According to the contract theory of the state, individuals give up their freedom to a specialist in violence who provides public goods, such as private property rights and collective defense, in exchange for the right to tax citizens. The predatory perspective views the state as expropriating what it can unless individuals develop institutions of collective action to continually constrain the scope of the state. We extend the predatory theory by showing how the behavior of rulers depends on political stability, political constraints, the nature of self-governance, and foreign intervention. We use evidence from Afghanistan to illustrate how political instability and the absence of meaningful political constraints enables the predatory state. Foreign aid and foreign military intervention amplify the wealth-destroying features of political institutions. Customary self-governance provides public goods locally but is only a partial defense against predatory rulers and can be overwhelmed by predatory self-governing organizations, especially the Taliban.

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