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Finite horizons, political economy, and growth

James Kahn () and Jong-Soo Lim

No 102, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A "representative" government (that is, one whose preferences reflect those of its constituents) endowed merely with the ability to tax and transfer can improve somewhat on the market allocation but cannot achieve first-best growth. Efficiency requires in addition the ability to bind future governments. We argue that this ability is related to political stability, and provide empirical evidence that stability and growth-related policies (namely education) are meaningfully related.

Keywords: Economic development; Political science; public expenditures (search for similar items in EconPapers)
JEL-codes: D9 H3 O5 (search for similar items in EconPapers)
Date: 2000-04-01
New Economics Papers: this item is included in nep-cdm, nep-dev and nep-dge
Note: For a published version of this report, see James A. Kahn and Jong-Soo Lim, "Finite Horizons, Political Economy, and Growth," Review of Economic Dynamics 4, no. 1 (January 2001): 1-25.
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Journal Article: Finite Horizons, Political Economy, and Growth (2001) Downloads
Working Paper: Finite Horizons, Political Economy, and Growth (1996)
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