Finite horizons, political economy, and growth
AbstractThis paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A "representative" government (that is, one whose preferences reflect those of its constituents) endowed merely with the ability to tax and transfer can improve somewhat on the market allocation but cannot achieve first-best growth. Efficiency requires in addition the ability to bind future governments. We argue that this ability is related to political stability, and provide empirical evidence that stability and growth-related policies (namely education) are meaningfully related.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 102.
Date of creation: 2000
Date of revision:
Other versions of this item:
- D9 - Microeconomics - - Intertemporal Choice
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-05-08 (All new papers)
- NEP-CDM-2000-05-08 (Collective Decision-Making)
- NEP-DEV-2000-05-08 (Development)
- NEP-DGE-2000-05-08 (Dynamic General Equilibrium)
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