Power fluctuations and political economy |
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Authors: | Daron Acemoglu Mikhail Golosov Aleh Tsyvinski |
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Institution: | a MIT, United States b CIFAR, Canada c Yale University, Department of Economics, Box 208268, New Haven, CT, United States d NES, Russia |
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Abstract: | We study (constrained) Pareto efficient allocations in a dynamic production economy where the group that holds political power decides the allocation of resources. For high discount factors, the economy converges to a first-best allocation where labor supply decisions are not distorted. For low discount factors, distortions do not disappear and fluctuate over time. Most importantly, the set of sustainable first-best allocations is larger when there is less persistence in the identity of the party in power (because this encourages political compromise). This result contradicts the common presumption that there will be fewer distortions when there is a “stable ruling group”. |
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Keywords: | P16 P48 |
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