Barriers to investment in polarized societies

Marina Azzimonti

No 1233, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: I present a model where disagreements about the composition of spending in a polarized and politically unstable society result in implementation of short-sighted policies and large governments. Investment rates are too low which slows down growth along the transition. In the long run, this results in output, consumption and welfare being inefficiently low. The larger the degree of polarization, the greater the inefficiency. Political stability mitigates the effects of polarization by making the incumbent internalize the dynamic inefficiencies introduced by the choice of growth-retarding policies.

Date: 2009
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Related works:
Journal Article: Barriers to Investment in Polarized Societies (2011)
Working Paper: Barriers to investment in polarized societies (2009)
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More papers in 2009 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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