Finite Horizons, Political Economy, and Growth

This paper analyzes the political economy of growth when agents and the government have finite horizons and equilibrium growth is inefficient. A quot;representativequot; government (that is, one whose preferences reflect those of its constituents) endowed merely with the ability to tax and transfer can improve somewhat on market allocation but cannot achieve first-best growth. Efficiency requires in addition bind future governments. We argue that this is related political stability, provide empirical evidence stability growth-related policies (namely education) are meaningfully related