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Political Institutions and Economic Growth

  • Marsiliani, Laura
  • Renström, Thomas I
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    We analyze the impact of micro-founded political institutions on economic growth in an overlapping-generations economy, where individuals differ in preferences over a public good (as well as in age). Labour and capital taxes finance the public good and a public input. The benchmark institution is a parliament, where all decisions are taken. Party entry, parliamentary composition, coalition formation, and bargaining are endogenous. We compare this constitution to delegation of decision-making, where a spending minister (elected in parliament or appointed by the largest party). Delegation of decision-making tends to yield lower growth, mainly due to the occurrence of production inefficiency.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6143.

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    Date of creation: Feb 2007
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    Handle: RePEc:cpr:ceprdp:6143
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    1. Torsten Persson & Gerard Roland & Guido Tabellini, 2000. "Comparative Politics and Public Finance," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1121-1161, December.
    2. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," NBER Working Papers 10481, National Bureau of Economic Research, Inc.
    3. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
    4. Persson, T. & Tabellini, G., 1998. "The Size and Scope of Government: Comparative Politics with Rational Politicians," Papers 658, Stockholm - International Economic Studies.
    5. Renstrom, Thomas I, 1996. "Endogenous Taxation: An Overlapping Generations Approach," Economic Journal, Royal Economic Society, vol. 106(435), pages 471-82, March.
    6. Baron, David P. & Diermeier, Daniel & Fong, Pohan, 2007. "Policy Dynamics and Inefficiency in a Parliamentary Democracy with Proportional Representation," Research Papers 1960, Stanford University, Graduate School of Business.
    7. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-36, March.
    8. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, vol. 94(1), pages 25-45, March.
    9. Marco Battaglini & Stephen Coate, 2007. "Inefficiency in Legislative Policymaking: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 97(1), pages 118-149, March.
    10. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
    11. Martin J. Osborne & Al Slivinski, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 65-96.
    12. Marsiliani, Laura & Renström, Thomas I, 2004. "Political Institutions, Environmental Policy and Growth," CEPR Discussion Papers 4670, C.E.P.R. Discussion Papers.
    13. Torsten Persson & Gerard Roland & Guido Tabellini, 2004. "How Do Electoral Rules Shape Party Structures, Government Coalitions, and Economic Policies?," CESifo Working Paper Series 1115, CESifo Group Munich.
    14. Timothy Besley & Stephen Coate, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 85-114.
    15. Gilat Levy, 2004. "A model of political parties," LSE Research Online Documents on Economics 540, London School of Economics and Political Science, LSE Library.
    16. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.
    17. Walter Hettich & Stanley L. Winer, 1995. "Decision Externalities, Economic Efficiency and Institutional Response," Canadian Public Policy, University of Toronto Press, vol. 21(3), pages 344-361, September.
    18. Torsten Persson, 2005. "Forms of Democracy, Policy and Economic Development," NBER Working Papers 11171, National Bureau of Economic Research, Inc.
    19. David P. Baron & Daniel Diermeier, 2001. "Elections, Governments, and Parliaments in Proportional Representation Systems," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 933-967.
    20. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1998. "Towards micropolitical foundations of public finance," European Economic Review, Elsevier, vol. 42(3-5), pages 685-694, May.
    21. Jeffrey Banks & John Duggan, 2001. "A Multidimensional Model of Repeated Elections," Wallis Working Papers WP24, University of Rochester - Wallis Institute of Political Economy.
    22. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
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