Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18056
Authors: 
Zak, Paul J.
Ghate, Chetan
Year of Publication: 
2002
Series/Report no.: 
DIW Discussion Papers 320
Abstract: 
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.
Subjects: 
Public Investment
Positive Political Economy
Median Voter Theorem
Endogenous Growth
JEL: 
P16
O40
E62
Document Type: 
Working Paper

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