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Rent Seeking, Policy and Growth under Electoral Uncertainty: Theory and Evidence

  • Konstantinos Angelopoulos
  • George Economides

We construct an otherwise standard general equilibrium model of economic growth and endogenously chosen fiscal policy, in which individuals compete with each other for extra fiscal transfers and two political parties compete with each other for staying in power. The main prediction is that relatively large public sectors in pre-election periods distort incentives by pushing individuals away from productive work to rent seeking activities. In turn, distorted incentives hurt growth. We test this prediction by using a panel data set of a group of 25 OECD countries over the period 1982-1996, as well as a cross-section of 108 industrial and developing countries over the decade 1990-2000. There is evidence that electoral and/or political instability cause relatively large public sectors, which in turn increase rent seeking (as measured by the ICRG index), and this is bad for economic growth.

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File URL: http://degit.sam.sdu.dk/papers/degit_10/C010_029.pdf
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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c010_029.

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Length: 32 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:deg:conpap:c010_029
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