Finite Horizons, Political Economy, and Growth
This paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A "representative" government (i.e. 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. (Copyright: Elsevier)
Volume (Year): 4 (2001)
Issue (Month): 1 (January)
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