IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/6143.html
   My bibliography  Save this paper

Political Institutions and Economic Growth

Author

Listed:
  • Renström, Thomas I
  • Marsiliani, Laura

Abstract

We analyze the impact of micro-founded political institutions on economic growth in an overlapping-generations economy, where individuals differ in preferences over a public good (as well as in age). Labour and capital taxes finance the public good and a public input. The benchmark institution is a parliament, where all decisions are taken. Party entry, parliamentary composition, coalition formation, and bargaining are endogenous. We compare this constitution to delegation of decision-making, where a spending minister (elected in parliament or appointed by the largest party). Delegation of decision-making tends to yield lower growth, mainly due to the occurrence of production inefficiency.

Suggested Citation

  • Renström, Thomas I & Marsiliani, Laura, 2007. "Political Institutions and Economic Growth," CEPR Discussion Papers 6143, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6143
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP6143
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marco Battaglini & Stephen Coate, 2007. "Inefficiency in Legislative Policymaking: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 97(1), pages 118-149, March.
    2. Torsten Persson & Gerard Roland & Guido Tabellini, 2000. "Comparative Politics and Public Finance," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1121-1161, December.
    3. Walter Hettich & Stanley L. Winer, 1995. "Decision Externalities, Economic Efficiency and Institutional Response," Canadian Public Policy, University of Toronto Press, vol. 21(3), pages 344-361, September.
    4. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
    5. Baron, David P. & Ferejohn, John A., 1989. "Bargaining in Legislatures," American Political Science Review, Cambridge University Press, vol. 83(4), pages 1181-1206, December.
    6. Torsten Persson & Gerard Roland & Guido Tabellini, 2003. "How Do Electoral Rules Shape Party Structures, Government Coalitions and Economic Policies?," Working Papers 251, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Timothy Besley & Stephen Coate, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 85-114.
    8. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    9. Renstrom, Thomas I, 1996. "Endogenous Taxation: An Overlapping Generations Approach," Economic Journal, Royal Economic Society, vol. 106(435), pages 471-482, March.
    10. Persson, Torsten & Tabellini, Guido, 1999. "The size and scope of government:: Comparative politics with rational politicians," European Economic Review, Elsevier, vol. 43(4-6), pages 699-735, April.
    11. Martin J. Osborne & Al Slivinski, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(1), pages 65-96.
    12. Jeffrey Banks & John Duggan, 2001. "A Multidimensional Model of Repeated Elections," Wallis Working Papers WP24, University of Rochester - Wallis Institute of Political Economy.
    13. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    14. David P. Baron & Daniel Diermeier, 2001. "Elections, Governments, and Parliaments in Proportional Representation Systems," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 933-967.
    15. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    16. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1998. "Towards micropolitical foundations of public finance," European Economic Review, Elsevier, vol. 42(3-5), pages 685-694, May.
    17. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    18. Austen-Smith, David & Banks, Jeffrey, 1988. "Elections, Coalitions, and Legislative Outcomes," American Political Science Review, Cambridge University Press, vol. 82(2), pages 405-422, June.
    19. Baron, David P. & Diermeier, Daniel & Fong, Pohan, 2007. "Policy Dynamics and Inefficiency in a Parliamentary Democracy with Proportional Representation," Research Papers 1960, Stanford University, Graduate School of Business.
    20. Persson, Torsten, 2005. "Forms of Democracy, Policy and Economic Development," CEPR Discussion Papers 4938, C.E.P.R. Discussion Papers.
    21. Philippe Aghion, 2005. "Growth and Institutions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(1), pages 3-18, March.
    22. Turnovsky, Stephen J. & Fisher, Walter H., 1995. "The composition of government expenditure and its consequences for macroeconomic performance," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 747-786, May.
    23. Levy, Gilat, 2004. "A model of political parties," Journal of Economic Theory, Elsevier, vol. 115(2), pages 250-277, April.
    24. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, vol. 94(1), pages 25-45, March.
    25. Renström, Thomas I & Marsiliani, Laura, 2004. "Political Institutions, Environmental Policy and Growth," CEPR Discussion Papers 4670, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gylfason, Thorvaldur & Hochreiter, Eduard, 2009. "Growing apart? A tale of two republics: Estonia and Georgia," European Journal of Political Economy, Elsevier, vol. 25(3), pages 355-370, September.
    2. Manzoor Ahmed, 2015. "The Political Economy of Decentralisation and Access to Pro-poor Social Services Delivery in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(4), pages 471-486.
    3. Manzoor Ahmed, 2023. "Political Economy of Discretionary Allocation of Annual Development Programmes: Theory and Evidence from Balochistan (Article)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 62(2), pages 167-197.
    4. Diego Aboal, 2020. "Electoral systems and economic growth," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 781-805, October.
    5. Kamiguchi, Akira & Tamai, Toshiki, 2023. "Public investment, national debt, and economic growth: The role of debt finance under dynamic inefficiency," Journal of Macroeconomics, Elsevier, vol. 77(C).
    6. Thorvaldur Gylfason & Eduard Hochreiter, 2011. "Growing Together: Croatia and Latvia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 53(2), pages 165-197, June.
    7. Thorvaldur Gylfason & Eduard Hochreiter, 2023. "To Grow or Not to Grow: Belarus and Lithuania," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(1), pages 137-167, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Laura Marsiliani & Thomas Renström, 2007. "Political institutions and economic growth," Economics of Governance, Springer, vol. 8(3), pages 233-261, May.
    2. Thomas Renstrom & Laura Marsiliani, 2005. "Political Institutions and Economic Growth," Money Macro and Finance (MMF) Research Group Conference 2005 53, Money Macro and Finance Research Group.
    3. César Martinelli & John Duggan, 2014. "The Political Economy of Dynamic Elections: A Survey and Some New Results," Working Papers 1403, Centro de Investigacion Economica, ITAM.
    4. Diego Aboal, 2020. "Electoral systems and economic growth," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 781-805, October.
    5. Pohan Fong & Daniel Diermeier, 2007. "Policy Persistence in Multi-party Parliamentary Democracies," 2007 Meeting Papers 248, Society for Economic Dynamics.
    6. Laura Marsiliani & Thomas I Renstrom, 2005. "Political Institutions, Environmental Policy and Growth," Money Macro and Finance (MMF) Research Group Conference 2005 38, Money Macro and Finance Research Group.
    7. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659, Elsevier.
    8. Antonio Merlo, 2005. "Whither Political Economy? Theories, Facts and Issues," PIER Working Paper Archive 05-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Dec 2005.
    9. Eicher, Theo S. & Schreiber, Till, 2010. "Structural policies and growth: Time series evidence from a natural experiment," Journal of Development Economics, Elsevier, vol. 91(1), pages 169-179, January.
    10. Daniel Diermeier & Pohan Fong, 2011. "Bargaining over the budget," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 36(3), pages 565-589, April.
    11. Persson, Torsten, 2005. "Forms of Democracy, Policy and Economic Development," CEPR Discussion Papers 4938, C.E.P.R. Discussion Papers.
    12. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    13. Eicher, Theo S. & García-Peñalosa, Cecilia & Kuenzel, David J., 2018. "Constitutional rules as determinants of social infrastructure," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 182-209.
    14. Joscha Beckmann & Marek Endrichs & Rainer Schweickert, 2016. "Government activity and economic growth – one size fits All?," International Economics and Economic Policy, Springer, vol. 13(3), pages 429-450, July.
    15. David Baron & Daniel Diermeier & Pohan Fong, 2012. "A dynamic theory of parliamentary democracy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(3), pages 703-738, April.
    16. Méon, Pierre-Guillaume & Sekkat, Khalid, 2022. "A time to throw stones, a time to reap: how long does it take for democratic transitions to improve institutional outcomes?," Journal of Institutional Economics, Cambridge University Press, vol. 18(3), pages 429-443, June.
    17. Fischer, Ronald & Huerta, Diego, 2021. "Wealth inequality and the political economy of financial and labour regulations," Journal of Public Economics, Elsevier, vol. 204(C).
    18. Francesco Giovannoni & Daniel Seidmann, 2014. "Corruption and power in democracies," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(3), pages 707-734, March.
    19. Diermeier, Daniel & Merlo, Antonio, 2004. "An empirical investigation of coalitional bargaining procedures," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 783-797, March.
    20. Andrea Mattozzi & Matias Iaryczower, 2008. "Ideology and Competence in Alternative Electoral Systems," 2008 Meeting Papers 980, Society for Economic Dynamics.

    More about this item

    Keywords

    Bargaining; Endogenous growth; Overlapping generations; Taxation; Voting;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:6143. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.