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Nation States vs. United Empire: Effects of Political Competition on Economic Growth

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Chu, Angus C.

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Abstract

Is political fragmentation (i.e. nation states) more favorable to economic growth than political unification (i.e. a united empire)? This paper develops a simple endogenous-growth model to analyze the conditions under which economic growth is higher under political fragmentation than under political unification. Under political unification, the economy is vulnerable to excessive Leviathan taxation and possibly subject to the costs of unifying heterogeneous populations. Under political fragmentation, the competing rulers are constrained in taxation but spend excessively on military defense. If and only if capital is sufficiently mobile, then political fragmentation would favor economic growth. When the political regime is chosen by the rulers, they do not always choose the growth-maximizing regime. In particular, there exists a range of parameter values, in which political fragmentation is more favorable to growth but the rulers prefer political unification.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8320.

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Date of creation: Dec 2008
Date of revision: Dec 2008
Handle: RePEc:pra:mprapa:8320

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Related research
Keywords: economic growth; Leviathan taxation; interstate competition; political fragmentation;

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Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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  1. Grossman, Herschel I. & Noh, Suk Jae, 1994. "Proprietary public finance and economic welfare," Journal of Public Economics, Elsevier, vol. 53(2), pages 187-204, February. [Downloadable!] (restricted)
  2. Cellini, Roberto & Lambertini, Luca, 1998. "A Dynamic Model of Differentiated Oligopoly with Capital Accumulation," Journal of Economic Theory, Elsevier, vol. 83(1), pages 145-155, November. [Downloadable!] (restricted)
  3. Azam Chaudhry & Phillip Garner, 2006. "Political Competition Between Countries and Economic Growth," Review of Development Economics, Blackwell Publishing, vol. 10(4), pages 666-682, November. [Downloadable!] (restricted)
  4. Pohjola, Matti, 1983. "Nash and stackelberg solutions in a differential game model of capitalism," Journal of Economic Dynamics and Control, Elsevier, vol. 6(1), pages 173-186, September. [Downloadable!] (restricted)
  5. Daron Acemoglu, 2007. "Introduction to Modern Economic Growth," Levine's Bibliography 122247000000001721, UCLA Department of Economics. [Downloadable!]
  6. Cellini, Roberto & Lambertini, Luca, 2002. "A differential game approach to investment in product differentiation," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 51-62, November. [Downloadable!] (restricted)
  7. Danyang Xie, 2002. "On Time Inconsistency: A Technical Issue in Stackelberg Differential Games," Macroeconomics 0212004, EconWPA. [Downloadable!]
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