Democracy, Government Spending, and Economic Growth: A Political-Economic Explanation of the Barro-Effect
AbstractThe paper develops a political economic argument for the recently observed inverse u-shaped relation between the level of democracy and economic performance. A model is constructed that shows why and how political participation influences the spending behavior of opportunistic governments that can choose an optimal combination of rents and public goods to attract political support. If the level of democracy remains comparably low, governments rationally choose rents as an instrument to assure political support. With increasing democratic participation, however, rents become an increasingly expensive instrument while the provision of public goods becomes more and more efficient in ensuring the incumbent government's survival in power. As a consequence, an increase in democracy tends to raise growth rates of per capita income. However, the beneficial impact of democracy on growth holds true only for moderate degrees of political participation. If--in semi-democratic countries--political participation increases further, governments have an incentive to over-invest in the provision of public goods. This model allows to derive and test three hypothesis: Firstly, based on a simple endogenous growth model, we empirically substantiate our hypothesis of a non-linear, inverse u-shaped relation between the level of democracy and growth of per capita income. Secondly, we show that the impact of government spending on economic growth is higher in more democratic countries. Thirdly, we demonstrate that the level of democracy and government share of GDP are correlated in a u-shaped manner. Copyright 2003 by Kluwer Academic Publishers
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Public Choice.
Volume (Year): 117 (2003)
Issue (Month): 1-2 (October)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100332
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.