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Democracy, rent seeking, public spending and growth

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  • Mohtadi, Hamid
  • Roe, Terry L.

Abstract

Does democratization imply faster growth, less corruption and less inefficiency? Past studies yield ambiguous results on the effects of democracy on economic performance and growth. We develop a simple two-sector endogenous growth model that shows both very young and mature democracies grow faster than countries in mid stages of democratization, producing a 'U' effect. This effect results from the pattern of rent seeking as it diverts from the provision of public goods. Rent-seekers act as monopolistic competitors. Initially, more democracy increases their number, raising aggregate rents. However, rents per rent-seeker fall with the number of rent seekers, aggregate rents fall in mature democracies. Thus, rents show an 'inverted-U' effects in relation to democracy. We find fairly robust supportive evidence for the latter.
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  • Mohtadi, Hamid & Roe, Terry L., 2003. "Democracy, rent seeking, public spending and growth," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 445-466, March.
  • Handle: RePEc:eee:pubeco:v:87:y:2003:i:3-4:p:445-466
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