Please use this identifier to cite or link to this item:
http://dspace.mediu.edu.my:8181/xmlui/handle/10419/18044| Title: | Optimal Fiscal Policy in an Economy Facing Socio-Political Instability |
| Keywords: | P16 O40 E62 ddc:330 Socio-Political Instability Endogenous Growth Public Investment Political Economy of Growth Finanzpolitik Wachstumstheorie Optimales Wachstum Politische Stabilität Soziale Stabilität Schätzung Welt |
| Issue Date: | 16-Oct-2013 |
| Publisher: | Deutsches Institut für Wirtschaftsforschung (DIW) Berlin |
| Description: | We present a model of optimal government policy when policy choices may exacerbate socio-political instability (SPI). We show that optimal policy that takes into account SPI transforms a standard concave growth model into a model with both a poverty trap and endogenous growth. The resulting equilibrium dynamics inherit the properties of government policies and need not be monotone. Indeed, for a broad set of conditions we demonstrate that government policy is unable to eliminate the poverty trap; when these conditions do not hold, "most" countries eventually reach a balanced growth path. The predictions of the model are tested by developing three new measures of SPI for a panel of 58 countries. Estimating optimal policies and the growth equation derived from the model reveals strong support for the theory. In particular, we show via simulations that optimal funding for public investment and the police cause a typical developing economy to expand on a quasi-linear growth path, with the baseline level of SPI determining whether growth is positive or negative. |
| URI: | http://koha.mediu.edu.my:8181/xmlui/handle/10419/18044 |
| Other Identifiers: | http://hdl.handle.net/10419/18044 ppn:367005476 |
| Appears in Collections: | EconStor |
Files in This Item:
There are no files associated with this item.
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.