Democracy and Growth Volatility: exploring the links
Our empirical investigation reveals that less democratic countries have higher volatility of GDP growth rates. Disparity in polity across countries robustly dominates differences in initial income, inequality or instability of regimes, the commonly cited reasons in the literature, as the main determinant of volatility. To explain this observation we use a stochastic dynamic model in which democracy is parameterized by the fraction of people who benefit from fiscal transfers. The government in this model maximizes the groupâ€™s utility by taxing the whole population and transfering revenue to this group. The optimal fiscal policy in such economy ensures the favored group at the expense of the rest. It is procyclical and amplifies the exogeneous shocks. More so in less democratic countries. Thus, our model is successful in explaining why tax policies are pro-cyclical in some countries, in addition to providing reasons for differences in volatility of growth rates across countries.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||04 Jul 2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://comp-econ.org/|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sce:scecfa:231. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.