DP6143 Political Institutions and Economic Growth

Author(s): Laura Marsiliani, Thomas I Renström
Publication Date: February 2007
Keyword(s): bargaining, endogenous growth, overlapping generations, taxation, voting
JEL(s): D72, D90, H20, H41, O41
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6143

We analyze the impact of micro-founded political institutions on economic growth in an overlapping-generations economy, where individuals differ in preferences over a public good (as well as in age). Labour and capital taxes finance the public good and a public input. The benchmark institution is a parliament, where all decisions are taken. Party entry, parliamentary composition, coalition formation, and bargaining are endogenous. We compare this constitution to delegation of decision-making, where a spending minister (elected in parliament or appointed by the largest party). Delegation of decision-making tends to yield lower growth, mainly due to the occurrence of production inefficiency.