marina, azzimonti (2009): Barriers to investment in polarized societies. Forthcoming in: american economic review
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I present a tractable dynamic model of political economy where disagreements about the composition of public spending result in implementation of short-sighted policies. The relative price of investment to consumption is excessively large in equilibrium due to over-taxation. 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 is the degree of polarization, the greater is 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.
|Item Type:||MPRA Paper|
|Original Title:||Barriers to investment in polarized societies|
|English Title:||Barriers to investment in polarized societies|
|Keywords:||Barriers to Investment, Commitment, Probabilistic Voting, Markov Equilibrium, Time Consistency, Polarization, Speed of Convergence, Development.|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
O - Economic Development, Technological Change, and Growth > O2 - Development Planning and Policy > O23 - Fiscal and Monetary Policy in Development
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
|Depositing User:||marina azzimonti|
|Date Deposited:||21. Oct 2010 16:15|
|Last Modified:||15. Feb 2013 21:45|
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