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Political institutions and economic growth

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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 decisionmaking, where a spending minister (elected in parliament or appointed by the largest party). Delegation of decisionmaking tends to yield lower growth, mainly due to the occurrence of production inefficiency.

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Correspondence to Thomas I. Renström.

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We wish to thank an anonymous referee, Toke Aidt, Roger Congleton, Avinash Dixit, Mike Felgenhauer, Pohan Fong, Piergiuseppe Fortunato, Arye Hillman, Stan Winer, and seminar participants at Southampton; Warwick; IIES, Stockholm; and participants at the Conference on Economic Growth and Distribution, Lucca, 2004; the Annual Meeting of the European Public Choice Society, Durham, 2005; the Midwest Macroeconomics Meetings, Iowa, 2005; the IIPF Congress, Jeju, 2005; the Money, Macro and Finance Research Group Conference, Rethymno, 2005; the WZB Conference, Berlin, 2005; and the North American Summermeeting of the Econometric Society, Minneapolis, 2006.

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Marsiliani, L., Renström, T.I. Political institutions and economic growth. Economics of Governance 8, 233–261 (2007).

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