5Economic System = Allocation of Economic Resources Institutional Economic FrameworkGeographyCulturePoliticsPolitical MACRO-economicsPolitical MICRO-economicsEconomic System = Allocation of Economic ResourcesPolitical System = Allocation of Power Resources
6political system allocates “de jure” power + “de facto” power inequality by nature,still inequality in societyequality by nature,but inequality in societypolitical system allocates “de jure” power + “de facto” powerinequality by nature,but equality in societyequality by nature,still equality in society= inclusive institutionsWhy Nations Fail
7Democracy is defined as all individuals can vote, andtheir voting influences which social choices and policies are adopted.political system allocates “de jure” power + “de facto” powerinequality by nature,but equality in societyequality by nature,still equality in society
9Fundamental Assumptions economic-based: economic incentives on political outcomesconflict: different groups have opposing interests over political outcomes == political institutionspolitical institutions play a central role of solving conflict
10Some Model Assumptions rationality: individuals have well-defined preferences over outcomes or the consequences of their actionsunique policy instrument: income tax ratebalanced budget under bureaucratic cost:two-class society:
13poor rich the poor prefers high tax rate (= high transfer) the rich prefers low tax rate (= low transfer)13
14Under Full DemocracyThe poor is majority >> The poor sets tax rate for the whole society.p is set for the whole society, not r.If inequality exists (yp << yr), Transferp >> Transferr, p >> r.Conflict between rich and poor exists.Under full democracy: no conflict iff no inequality
15Under Full AutocracyElites control de jure power, and citizens can exercise de facto power.Elites set tax rateunder revolution constraint.Citizens can make revolution (R);
25DemocratizationStart with Nondemocratic Regime with Inequality
26DemocratizationThe rich must choose democratic path.
27DemocratizationTax rate under democracy is too high for the rich.
28DemocratizationPolitical instability (vicious cycle) path of Thailand
29specific for Thai society Some Extensionsspecific for Thai society
30Role of Middle ClassMiddle class can be either leader of the poor or buffer of the rich.
31Ideological Bias People have some biases over some political parties. no convergence,conflict persists
32for the future of Thailand Implicationfor the future of Thailand
332. Only way to reduce conflict is to reduce inequality. 1. Under inequality, political market and economic market cannot be in equilibrium at the same time, always.2. Only way to reduce conflict is to reduce inequality.If inequality exists, conflict exists.3. Effective way to reduce inequality (to reduce conflict) is on pre-tax income, not post-tax income.eg. ภาษีที่ดิน ภาษีทรัพย์สิน
344. Bureaucratic cost, including corruption, not only decreases efficiency, but also increases conflict.5. Almost full democracy is better to reduce conflict in society with high inequality, and near democracy is better than near autocracy. >> in the aspect of INCLUSIVENESS6. Inclusion of Middle Class and the poor and creating political arena are important for democratization.