Instability, political regimes and economic growth. A theoretical framework

This paper models the influence of political instability on long‐term economic growth. We consider three political systems associated to real‐world political systems of increasing participation in policy‐making. For each system, society chooses an agent that remains in power unless instability, repr...

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Bibliographic Details
Published inMetroeconomica Vol. 73; no. 1; pp. 291 - 317
Main Authors Tohmé, Fernando, Caraballo, M. Ángeles, Dabús, Carlos
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.02.2022
Subjects
Consumption
dictatorship
Economic analysis
Economic growth
Income distribution
instability
majority rule system
Policy making
political regimes
Political risk
Political systems
proportional representation system
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Summary:This paper models the influence of political instability on long‐term economic growth. We consider three political systems associated to real‐world political systems of increasing participation in policy‐making. For each system, society chooses an agent that remains in power unless instability, represented as a shortening of the period in office, sets in, which in turn leads to a shortening of the temporal horizon. The agent in charge reevaluates the optimal consumption program, by increasing the rate of time preference and the consumption. With a positively skewed income distribution, the relationship between participation and growth presents different shapes, depending on the probability of the agent in office being ousted. Our results lend theoretical support to the various findings in the empirical literature on the effects of political systems on economic growth.
ISSN:0026-1386
1467-999X
DOI:10.1111/meca.12362