Decentralization in Autocraties

In a model with two regions, one rich and one poor, the allocation of net public spending is studied whereby the initial political process by which taxation and government expenditures are determined is centralized and not democratic. In stable autocracy, decentralization reforms depend on a trade-off: centralization allows a higher rate of rent extraction for the autocrat, but at the cost of reduced productivity in the poor region. Faced with democratic pressure and instability, an authoritarian regime captured by the elite will choose to implement decentralization reforms before democratization because the median voter, who typically lives in a poor rural area, will have no interest in doing so. In democracy, the welfare of the elite is higher with decentralization than with centralization, while the welfare of the poor median voter is identical in both regimes