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When Government Spending Serves the Elites: Consequences for Economic Growth in a Context of Market Imperfections

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Author Info
Lopez, Ramon
Islam, Asif

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Abstract

Government spending should be regarded as a social and political phenomenon, not merely as a technical choice. We argue that there is an implicit contract between the organized elites and politicians which often leads to a pro-elite allocation of public resources. A natural and simple taxonomy of government spending follows from this view: spending in public goods broadly defined which mitigate market failures versus spending in non-social subsidies, mainly a vehicle to serve the elites. We theoretically and empirically show that pro-elite spending biases are costly in terms of economic growth. The empirical findings are exceptionally robust.

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Paper provided by University of Maryland, Department of Agricultural and Resource Economics in its series Working Papers with number 45875.

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Date of creation: 2008
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Handle: RePEc:ags:umdrwp:45875

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Keywords: government spending; economic growth; market imperfections; investment; subsidies; International Development; Labor and Human Capital; Political Economy; Public Economics;

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  1. Lopez, Ramon, 2009. "Natural disasters and the dynamics of intangible assets," Policy Research Working Paper Series 4874, The World Bank. [Downloadable!]
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