Economic Institutions and Autocratic Breakdown: Monetary Constraints and Spending in Dominant-Party Regimes

In dominant party regimes, party cadres’ participation in decision-making constrains dictators from arbitrarily changing policy. Party based regimes are also better at mobilizing supporters in exchange for extensive patronage. The conventional wisdom is that these two mechanisms work together to prolong dominant party regimes. However, under certain conditions, the elite-level constraints restrict autocratic leaders’ ability to engage in patronage distribution. We focus on monetary institutions, arguing that when central bank independence overlaps with the collective decision-making in dominant party regimes, dictators have diminished control over the central bank. Thus the central bank is effective enough to restrict expansionary fiscal policy, reducing the mobilization of supporters through patronage and increasing authoritarian breakdown risk. Analyses on data from 1970 to 2012 in 94 autocracies find that high central bank independence in dominant party regimes increases the likelihood of breakdown. Moreover, independent central banks in party- based autocracies contribute to lower fiscal expenditures.