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Finite Horizons, Political Economy, and Growth

Author

Listed:
  • James A Kahn

    (Federal Reserve Bank of New York)

  • Jong-Soo Lim

    (Kwangwoon University)

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 (i.e. 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. (Copyright: Elsevier)

Suggested Citation

  • James A Kahn & Jong-Soo Lim, 2001. "Finite Horizons, Political Economy, and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 1-25, January.
    • Handle: RePEc:red:issued:v:4:y:2001:i:1:p:1-25
    DOI: 10.1006/redy.2000.0111
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    2. Murard, Elie, 2017. "Less Welfare or Fewer Foreigners? Immigrant Inflows and Public Opinion towards Redistribution and Migration Policy," IZA Discussion Papers 10805, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    growth; political instability; political economy; education; Markov equilibrium;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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