Finite Horizons, Political Economy, and Growth - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

Finite Horizons, Political Economy, and Growth

April 2000 Number 102

JEL classification: D9, H3, O5

Authors: James A. Kahn and Jong-Soo Lim

This paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A "representative" government (that is, one whose preferences reflect those of its constituents) endowed merely with the ability to tax and transfer can improve somewhat on market allocation but cannot achieve first-best growth. Efficiency requires in addition bind future governments. We argue that this is related political stability, provide empirical evidence stability growth-related policies (namely education) are meaningfully related.

Available only in PDF PDF

37 pages / 232 kb

For a published version of this report, see James A. Kahn and Jong-Soo Lim, "Finite Horizons, Political Economy, and Growth," Review of Economic Dynamics 4, no. 1 (January 2001): 1-25.

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