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Fiscal policy, rent seeking, and growth under electoral uncertainty: theory and evidence from the OECD

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Author Info
Konstantinos Angelopoulos
George Economides

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Abstract

We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties alternate in power according to exogenous electoral uncertainty. The main prediction is that uncertainty about remaining in power results in increased fiscal spending, which in turn distorts incentives by pushing individuals away from productive work to rent-seeking activities; then, distorted incentives hurt growth. This scenario receives empirical support in a dataset of 25 OECD countries over the period 1982-96. In particular, uncertainty about remaining in power leads to larger government shares in GDP, which in turn exert an adverse effect on the ICRG index measuring incentives and this is bad for growth.

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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 41 (2008)
Issue (Month): 4 (November)
Pages: 1375-1405
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Handle: RePEc:cje:issued:v:41:y:2008:i:4:p:1375-1405

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Find related papers by JEL classification:
O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Konstantinos Angelopoulos & George Economides & Pantelis Kammas, 2009. "Do political incentives matter for tax policies? Ideology, opportunism and the tax structure," Working Papers 2009_12, Department of Economics, University of Glasgow. [Downloadable!]
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