Fiscal policy, rent seeking, and growth under electoral uncertainty: theory and evidence from the OECD

Konstantinos Angelopoulos () and George Economides ()

Canadian Journal of Economics, 2008, vol. 41, issue 4, pages 1375-1405

Abstract: We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties alternate in power according to exogenous electoral uncertainty. The main prediction is that uncertainty about remaining in power results in increased fiscal spending, which in turn distorts incentives by pushing individuals away from productive work to rent-seeking activities; then, distorted incentives hurt growth. This scenario receives empirical support in a dataset of 25 OECD countries over the period 1982-96. In particular, uncertainty about remaining in power leads to larger government shares in GDP, which in turn exert an adverse effect on the ICRG index measuring incentives and this is bad for growth.

JEL-codes: O43 E62 D72 (search for similar items in EconPapers)
Date: 2008
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Working Paper: Fiscal Policy, Rent Seeking and Growth under Electoral Uncertainty Theory and Evidence from the OECD (2008)
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