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Do Rich Countries Choose Better Governments?

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  • Azariadis Costas

    ()
    (UCLA)

  • Lahiri Amartya

    ()
    (UCLA)

Abstract

We analyze public investment in social infrastructure using a two-period model in which a government must intermediate all infrastructure investment. Voters choose a government from two alternative types, high quality and low quality. A high quality government obtains higher returns on infrastructure but also demands a bigger consumption payoff for intermediating investment, implying higher taxes for the voting public. We find that these intermediation costs cause threshold effects in the electoral process -- closed economies above a critical level of first period income elect high quality governments while economies below that level elect low quality ones. Thresholds vanish when voters can borrow abroad; capital mobility reduces the current consumption cost of infrastructure investment and favors better quality governments.

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File URL: http://www.degruyter.com/view/j/bejm.2002.2.issue-1/bejm.2002.2.1.1051/bejm.2002.2.1.1051.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 2 (2002)
Issue (Month): 1 (June)
Pages: 1-39

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Handle: RePEc:bpj:bejmac:v:contributions.2:y:2002:i:1:n:4

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Cited by:
  1. Ahmet Faruk Aysan, 2006. "The Role of Efficiency of Redistributive Institutions on Redistribution: An Empirical Assessment," Working Papers 2006/14, Bogazici University, Department of Economics.
  2. Aysan, Ahmet Faruk & Nabli, Mustapha Kamel & Veganzones-Varoudakis, Marie-Ange, 2006. "Governance and private investment in the Middle East and North Africa," Policy Research Working Paper Series 3934, The World Bank.

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