Introduction

Motivated by observations such as these, recent research has developed a positive theory of what I have called ‘proprietary public finance’, or, more colourfully, ‘kleptocracy’. [See, for example, Lane, 1958; Auster and Silver, 1979; Lai, 1988; Bardhan, 1990; Findlay, 1990; or Grossman and Noh, 1990, 1994.] This theory assumes that the objective of the state's tax and spending policy is to extract maximum rent for the group that comprises the ruling class or political establishment. Historical examples of such groups include a monarchy and its court, the professional politicians, the bureaucrats, the members of the ruling party, or the military. In stable democracies, the existing political establishment can be an explicit or implicit coalition that draws in political factions regardless of party labels.