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Finite horizons, political economy, and growth

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  • James A. Kahn
  • Jong-Soo Lim

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.

Suggested Citation

  • James A. Kahn & Jong-Soo Lim, 2000. "Finite horizons, political economy, and growth," Staff Reports 102, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:102
    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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    Cited by:

    1. Kahn, J.A., 1996. "Education, Political Instability, and Growth," RCER Working Papers 434, University of Rochester - Center for Economic Research (RCER).
    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

    Economic development; Political science; public expenditures;
    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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