Dangling at the Abyss: How Deadweight Costs and Political Attitudes May Prevent (or Induce) Collapse
Posted: 13 Mar 2016
Date Written: February 11, 2016
Analysts have considered what might check the 20th century growth in government, thereby avoiding Leviathan and economic collapse. We develop a model where political economy equilibrium pushes the economy to the brink of collapse, but rising marginal welfare costs may prevent collapse. For small reductions in welfare from government, rational ignorance enables special interests to gain. When deadweight costs become large, taxpayers provide political opposition that prevents collapse. Optimistic views of government may alter this conclusion and induce collapse. However, if favorable attitudes toward government are revised downward in light of poor economic performance, this concern is lessened.
Keywords: economic collapse, political equilibrium, welfare costs
JEL Classification: D72, P16, O43
Suggested Citation: Suggested Citation