Politics and Corruption in the Two-Period Model

Chapter 2 tells us that benevolent national policy makers, motivated to maximize aggregate welfare, make efficient investments in public capital and favor poor regions in the allocation of that capital in order to increase economic growth and equalize regional income. In contrast to this optimistic view of government policy, the evidence from Chap. 1 indicates there are autocratic regimes that are far from benevolent. Many countries have failed to experience sustained modern growth and their living standards have diverged from, rather than converged to, those of rich countries. Empirical evidence indicates that income convergence across regions within a given country was characteristic of the twentieth century (Barro and Sala-i-Martin 1991, 1992). However, the rate of convergence was quite slow over the first 75 years of the century. Over the last 40 years, incomes have ceased to converge and may have actually diverged. (Arcalean et al. 2012; Ganong and Shoag 2013; Sacchi and Salotti 2011). The situation has been complicated by a slowdown in aggregate productivity growth that has reduced private and government resources that could be used to deal with persistent inequality.