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Barriers to investment in polarized societies

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  • Marina Azzimonti

    (U of Texas, Austin)

Abstract

I present a model where disagreements about the composition of spending in a polarized and politically unstable society result in implementation of short-sighted policies and large governments. Investment rates are too low which slows down growth along the transition. In the long run, this results in output, consumption and welfare being inefficiently low. The larger the degree of polarization, the greater the inefficiency. Political stability mitigates the effects of polarization by making the incumbent internalize the dynamic inefficiencies introduced by the choice of growth-retarding policies.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1233.

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Date of creation: 2009
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Handle: RePEc:red:sed009:1233

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