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Political Institutions and Economic Growth

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  • Renström, Thomas I
  • Marsiliani, Laura

Abstract

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.

Suggested Citation

  • Renström, Thomas I & Marsiliani, Laura, 2007. "Political Institutions and Economic Growth," CEPR Discussion Papers 6143, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6143
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    References listed on IDEAS

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    Cited by:

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    7. Thorvaldur Gylfason & Eduard Hochreiter, 2023. "To Grow or Not to Grow: Belarus and Lithuania," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(1), pages 137-167, March.

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    More about this item

    Keywords

    Bargaining; Endogenous growth; Overlapping generations; Taxation; Voting;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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