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Darby, Julia
Li, Chol-Won
Muscatelli, Anton
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 310
We focus on the link between political instability due to uncertain electoral outcomes and economic growth, through the impact on a government's decisions on how to allocate government expenditure between public consumption and investment. Using an endogenous growth model with partisan electoral effects, we demonstrate that political uncertainty will generate a steady-state equilibrium growth rate which is inefficient and too low. We also use a newly-constructed political data set to estimate panel regressions for several OECD economies over a period 1960-95. Our empirical evidence on the effects of political variables on tax and spending decisions supports our theoretical results.
Endogenous growth
public consumption and investment
political uncertainty
panel regressions
OECD countries
Document Type: 
Working Paper

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