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Power fluctuations and political economy

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Author Info

  • Acemoglu, Daron
  • Golosov, Mikhail
  • Tsyvinski, Aleh

Abstract

We study (constrained) Pareto efficient allocations in a dynamic production economy where the group that holds political power decides the allocation of resources. For high discount factors, the economy converges to a first-best allocation where labor supply decisions are not distorted. For low discount factors, distortions do not disappear and fluctuate over time. Most importantly, the set of sustainable first-best allocations is larger when there is less persistence in the identity of the party in power (because this encourages political compromise). This result contradicts the common presumption that there will be fewer distortions when there is a "stable ruling group".

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 3 (May)
Pages: 1009-1041

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:3:p:1009-1041

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Commitment problem Dynamic political economy Olson-McGuire hypothesis Political compromise Political economy Political power;

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References

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  1. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
  2. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1163-1202, November.
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  5. Daron Acemoglu & James A. Robinson, 2000. "Why Did The West Extend The Franchise? Democracy, Inequality, And Growth In Historical Perspective," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1167-1199, November.
  6. Daron Acemoglu & Michael Golosov & Aleh Tsyvinski, 2008. "Political Economy of Mechanisms," Econometrica, Econometric Society, vol. 76(3), pages 619-641, 05.
  7. Sonin, Konstantin, 2003. "Why the rich may favor poor protection of property rights," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 715-731, December.
  8. Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2009. "Political Economy of Ramsey Taxation," NBER Working Papers 15302, National Bureau of Economic Research, Inc.
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  22. Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 531-568, June.
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Cited by:
  1. Saint-Paul, Gilles & Ticchi, Davide & Vindigni, Andrea, 2012. "A Theory of Political Entrenchment," TSE Working Papers 12-284, Toulouse School of Economics (TSE).
  2. Marcet, A. & Marimon, R., 1998. "Recursive Contracts," Economics Working Papers eco98/37, European University Institute.
  3. Leonid Polishchuk & Georgiy Syunyaev, 2013. "Ruling elites' rotation and asset ownership: Implications for property rights," HSE Working papers WP BRP 43/EC/2013, National Research University Higher School of Economics.
  4. T. Renee Bowen & Ying Chen & Hülya Eraslan, 2012. "Mandatory Versus Discretionary Spending: the Status Quo Effect," Economics Working Paper Archive 603, The Johns Hopkins University,Department of Economics.
  5. Chatterjee, Satyajit & Eyigungor, Burcu, 2014. "Continuous Markov equilibria with quasi-geometric discounting," Working Papers 14-6, Federal Reserve Bank of Philadelphia.
  6. Ruediger Bachmann & Jinhui Bai, 2010. "Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality," NBER Working Papers 16247, National Bureau of Economic Research, Inc.
  7. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 775-784, May.

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