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Political uncertainty, public expenditure and growth

  • Darby, Julia
  • Li, Chol-Won
  • Muscatelli, V. Anton

We focus on the link between political instability due to uncertain electoral outcomes and economic growth, through the impact on a government's decisions on how to allocate government expenditure between public consumption and investment. Using an endogenous growth model with partisan electoral effects, we demonstrate that political uncertainty will generate a steady-state equilibrium growth rate which is inefficient and too low. We also use a newly-constructed political data set to estimate panel regressions for several OECD economies over a period 1960-95. Our empirical evidence on the effects of political variables on tax and spending decisions supports our theoretical results.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 20 (2004)
Issue (Month): 1 (March)
Pages: 153-179

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Handle: RePEc:eee:poleco:v:20:y:2004:i:1:p:153-179
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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