Fiscal policy, rent seeking and growth under electoral uncertainty: theory and evidence from the OECD

Angelopoulos, K. and Economides, G. (2008) Fiscal policy, rent seeking and growth under electoral uncertainty: theory and evidence from the OECD. Canadian Journal of Economics = Revue canadienne d'économique, 41(4), pp. 1375-1405. (doi:10.1111/j.1540-5982.2008.00508.x)

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Abstract

We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties alternate in power according to exogenous electoral uncertainty. The main prediction is that uncertainty about remaining in power results in increased fiscal spending, which in turn distorts incentives by pushing individuals away from productive work to rent-seeking activities; then, distorted incentives hurt growth. This scenario receives empirical support in a dataset of 25 OECD countries over the period 1982–96. In particular, uncertainty about remaining in power leads to larger government shares in GDP, which in turn exert an adverse effect on the ICRG index measuring incentives and this is bad for growth.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Angelopoulos, Dr Konstantinos
Authors: Angelopoulos, K., and Economides, G.
Subjects:H Social Sciences > HC Economic History and Conditions
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Canadian Journal of Economics = Revue canadienne d'économique
ISSN:0008-4085
ISSN (Online):1540-5982
Published Online:30 September 2008

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