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Political Uncertainty, Public Expenditure and Growth

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Listed:
  • Julia Darby
  • Chol-Won Li
  • Anton Muscatelli

Abstract

We focus on the link between political instability due to uncertain electoral outcomes and economic growth, through the impact on a government's decisions on how to allocate government expenditure between public consumption and investment. Using an endogenous growth model with partisan electoral effects, we demonstrate that political uncertainty will generate a steady-state equilibrium growth rate which is inefficient and too low. We also use a newly-constructed political data set to estimate panel regressions for several OECD economies over a period 1960-95. Our empirical evidence on the effects of political variables on tax and spending decisions supports our theoretical results.

Suggested Citation

  • Julia Darby & Chol-Won Li & Anton Muscatelli, 2000. "Political Uncertainty, Public Expenditure and Growth," CESifo Working Paper Series 310, CESifo.
    • Handle: RePEc:ces:ceswps:_310
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