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Political Uncertainity, Public Expenditure and GrowthAnton MuscatelliUniversity of Glasgow - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Julia DarbyUniversity of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics Chol-Won LiUniversity of Glasgow - Department of Economics July 2000 CESifo Working Paper Series No. 310 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.
Number of Pages in PDF File: 36 Keywords: Endogenous growth, public consumption and investment, political uncertainty, panel regressions, OECD countries JEL Classification: O41, H50, E61 working papers seriesDate posted: March 21, 2001Suggested CitationContact Information
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