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Finite Horizons, Political Economy, and Growth

  • James A Kahn

    (Federal Reserve Bank of New York)

  • Jong-Soo Lim

    (Kwangwoon University)

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)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 4 (2001)
Issue (Month): 1 (January)
Pages: 1-25

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Handle: RePEc:red:issued:v:4:y:2001:i:1:p:1-25
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