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Political uncertainty, public expenditure and growth

Author

Listed:
  • Darby, Julia
  • Li, Chol-Won
  • Muscatelli, V. Anton
Abstract
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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Darby, Julia & Li, Chol-Won & Muscatelli, V. Anton, 2004. "Political uncertainty, public expenditure and growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 153-179, March.
    • Handle: RePEc:eee:poleco:v:20:y:2004:i:1:p:153-179
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