The politics of endogenous growth

Is it politically feasible for governments to engineer endogenous growth? This paper illustrates two reasonable political decision mechanisms by which fiscal policy generates endogenous growth with a single accumulable factor, under a constant returns to scale production technology, and without production externalities. In the first mechanism, optimal policies are chosen by the government to maximize constituent support by raising aggregate income. In the second mechanism, optimal policies are determined in a voting equilibrium where agents are concerned only with their own incomes. We demonstrate that policies that target aggregates generate balanced growth and are Pareto optimal. Policies chosen by the median voter also produce balanced growth, but result in public investment 50% below the socially optimal level.

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Year of publication:	2002
Authors:	Zak, Paul J. ; Ghate, Chetan
Publisher:	Berlin : Deutsches Institut für Wirtschaftsforschung (DIW)
Subject:	Neue Wachstumstheorie \| Finanzpolitik \| Öffentliche Investition \| Wachstumspolitik \| Median Voter \| Pareto-Optimum \| Theorie \| Public Investment \| Positive Political Economy \| Median Voter Theorem \| Endogenous Growth

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Series:	DIW Discussion Papers ; 320
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	849540569 [GVK] hdl:10419/18056 [Handle] RePEc:diw:diwwpp:dp320 [RePEc]
Classification:	P16 - Political Economy ; O40 - Economic Growth and Aggregate Productivity. General ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
Source:	EconStor