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Political Uncertainty, Public Expenditure and Growth

  • Julia Darby
  • Chol-Won Li
  • Anton Muscatelli

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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 310.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_310
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