The Political Economy of Non Convergence

Fabio Kanczuk

Brazilian Review of Econometrics, 2000, vol. 20, issue 2

Abstract: I analyze the joint dynamics of distortionary taxation and economic growth in an environment where taxes are set by self-interested kleptocratic politicians competing for electoral success. The incumbent's incentive to appropriate resources is tempered by a desire to get reelected which would allow him to steal in future periods. Weak electoral control (or high agency costs) is consistent with "distortion-liberalization cycles" - oscillatory movements in economic activity - and also with endogenous "political risk", which reduces private investment. Agency costs can therefore account for permanent differences in international growth rates and for the phenomenon of conditional "non-convergence".

Date: 2000
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