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Rent Seeking, Policy and Growth under Electoral Uncertainty: Theory and Evidence

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Author Info
Konstantinos Angelopoulos
George Economides

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Abstract

We construct an otherwise standard general equilibrium model of economic growth and endogenously chosen fiscal policy, in which individuals compete with each other for extra fiscal transfers and two political parties compete with each other for staying in power. The main prediction is that relatively large public sectors in pre-election periods distort incentives by pushing individuals away from productive work to rent seeking activities. In turn, distorted incentives hurt growth. We test this prediction by using a panel data set of a group of 25 OECD countries over the period 1982-1996, as well as a cross-section of 108 industrial and developing countries over the decade 1990-2000. There is evidence that electoral and/or political instability cause relatively large public sectors, which in turn increase rent seeking (as measured by the ICRG index), and this is bad for economic growth.

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c010_029.

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Length: 32 pages
Date of creation: Jun 2005
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Handle: RePEc:deg:conpap:c010_029

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Related research
Keywords: Political uncertainty; economic growth; incentives;

Find related papers by JEL classification:
D7 - Microeconomics - - Analysis of Collective Decision-Making
D9 - Microeconomics - - Intertemporal Choice and Growth
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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    Other versions:
  3. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
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    Other versions:
  7. Paolo Mauro, 2002. "The Persistence of Corruption and Slow Economic Growth," IMF Working Papers 02/213, International Monetary Fund.
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  15. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May. [Downloadable!] (restricted)
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  16. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October. [Downloadable!] (restricted)
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  17. Economides, George & Philippopoulos, Apostolis & Price, Simon, 2002. "Elections, Fiscal Policy and Growth: Revisiting the Mechanism," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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