文档介绍：Politico-Economic Equilibrium and Economic Growth
Part 1: Background
Data show that growth performances are very different cross countries.
There are at least three approaches to explain the differences.
Endowment Approach (. Acemoglu and Zilibotti, 2001, QJE)
Multiple Equilibria Approach (. Azariadis and Drazen, 1990, QJE)
Policy Approach (. Barro, 1990, JPE)
Policy Approach
Public policies may have huge impacts on economic growth.
For example, increasing capital tax rate drops the interest rate and then depresses physical capital accumulation. Higher wage tax rate has the same effect on human capital accumulation.
The following es naturally: why countries adopt different public policies (or non-optimal policy)?
Political Economy
Public Policy is endogenously generated from political economy rather than an abstract benevolent government.
A number of theories tell us how public policies are determined in a political economy (a survey see Persson and Tabellini’s book, 2000, MIT).
The “Median Voter Theorem” is the most popular one to pin down the politico-economic equilibrium.
Part 2: A Basic Model
Environment: Consider a Three-Period economy. Only one generation lives in each period. Every generation consists of a skillful and a unskillful family (S and U henceforth). S in the current period gives birth to S in the next period, so as U.
Skillful
Skillful
Skillful
Unskillful
Unskillful
Unskillful
Family
1
Generations
(or periods)
2
3
Preference
S is altruistic towards her children (also skillful) in the following generations, so as U. Therefore, S and U in the first two generations would like to leave bequest to the their own children in the following generations.
Capital, Technology and Policy
Capital: The first generation is born with certain level of capital. Their bequests form the capital held by the second generation, whose bequest consequently form the capital held by the last generation.
Technology: Assume small open