The transparency curse: Private information and political freedom

• We analyze political geography and the size of governments in the presence of income inequality.
• Income inequality is neutral on the size of countries but reduces the optimal provision of public goods.
• A politico-economic equilibrium geography is characterized by suboptimal size of nations.
• Inequality can increase the size of countries, reduce public good provision and, at the same time, decrease their degree of openness.

I offer a model of the sustainability of authoritarian rule in which the transparency of productive economic activity enables the ruler to distinguish productive economic activity from preparations for rebellion. The less transparent the productive technology the greater the economic side effects of maintaining authoritarian rule, and the stronger the incentives to liberalize the regime. Using a cross section of countries I provide evidence that, consistently with the theory, democratic government Granger causes internet penetration.