The Dictator's Handbook: Why Bad Behavior is Almost Always Good Politics

Controlling the revenue source is essential to buying supporters’ loyalty. Once leaders have emptied the corporate or state treasury by buying off both their essential supporters and their replacements, they face a new challenge: refilling the treasury. Leaders put their survival at risk if they cannot find a reliable way to address this challenge.

One of the best ways to refill the treasury is through taxation. Leaders want to increase taxes because this gives them more resources to reward their supporters. Leaders face three limits to taxation. First, taxes decrease how hard people work. People are less willing to work hard if their money is going towards the government treasury instead of their own bank accounts. The ideal tax rate depends on the size of the essential supporters. Systems where there are larger groups of essentials, including democracies, typically have lower taxes than systems with smaller groups of essentials, like autocracies. Autocrats favor high taxes since this practice generates more money for themselves and their cronies. Democrats favor low taxes since their popularity relies on public projects, like defense and infrastructure. People in democracies expect their governments to take just the money required to pay for these public projects.

The second limitation to taxation is that some of the tax burden will fall upon the essential supporters of leaders.