The Politics of Endogenous Growth
AbstractIs it politically feasible for governments to engineer endogenous growth? This paper illustrates two reasonable political decision mechanisms by which fiscal policy generates endogenous growth with a single accumulable factor, under a constant returns to scale production technology, and without production externalities. In the first mechanism, optimal policies are chosen by the government to maximize constituent support by raising aggregate income. In the second mechanism, optimal policies are determined in a voting equilibrium where agents are concerned only with their own incomes. We demonstrate that policies that target aggregates generate balanced growth and are Pareto optimal. Policies chosen by the median voter also produce balanced growth, but result in public investment 50% below the socially optimal level.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 320.
Length: 12 p.
Date of creation: 2003
Date of revision:
Public Investment; Positive Political Economy; Median Voter Theorem; Endogenous Growth;
Other versions of this item:
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-01-19 (All new papers)
- NEP-DEV-2003-01-19 (Development)
- NEP-DGE-2003-01-19 (Dynamic General Equilibrium)
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