Political Economy of Mechanisms

Daron Acemoglu, Mikhail Golosov and Aleh Tsyvinski

Econometrica, 2008, vol. 76, issue 3, 619-641

Abstract: We study the provision of dynamic incentives to self-interested politicians who control the allocation of resources in the context of the standard neoclassical growth model. Citizens discipline politicians using elections. We show that the need to provide incentives to the politician in power creates political economy distortions in the structure of production, which resemble aggregate tax distortions. We provide conditions under which the political economy distortions persist or disappear in the long run. If the politicians are as patient as the citizens, the best subgame perfect equilibrium leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear. In contrast, when politicians are less patient than the citizens, political economy distortions remain asymptotically and lead to positive aggregate labor and capital taxes. Copyright Copyright 2008 by The Econometric Society.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (97)

Downloads: (external link)
http://hdl.handle.net/10.1111/j.1468-0262.2008.00849.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Political Economy of Mechanisms (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecm:emetrp:v:76:y:2008:i:3:p:619-641

Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues

Access Statistics for this article

Econometrica is currently edited by Guido Imbens

More articles in Econometrica from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().