Between Votes and Capital: The Politics of Redistribution in Less Developed Democracies

This paper builds on the democratic equilibrium established in open economies where the median voter refrains from “over-taxing ” the wealthy in order to prevent capital flight, advanced in Boix (2003). I explore this equilibrium in an electoral game where a left-wing candidate announces how much he will tax if elected, in order to maximize the income of the poor, and subject to the wealthy’s decision to send a share of his capital abroad. The model establishes how the wealthy should respond to prospects of income redistribution associated to a “turn to the left ” in office, as well as the conditions under which this response should affect the capacity of a left-wing incumbent to decision to deliver his campaign promises, or instead switch to a more conservative program (lower taxation and redistribution). The model demonstrates how exogenous shocks that change the relative productivity of capi-tal in the domestic economy, as well as increased capital mobility, are likely to affect the incumbent’s decision.