Fiscal policy,growth, income distribution and sociopolitical instability |
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| Affiliation: | 1. Comisión Federal para la Protección contra Riesgos Sanitarios (COFEPRIS), Monterrey 33, Colonia Roma, Delegación Cuauhtémoc, México City 06700, Mexico;2. Claremont Graduate University, Division of Politics and Economics, School of Social Science, Policy and Evaluation, 150 East Tenth Street, Claremont, CA 91711, United States;1. Polytechnique Montréal, C.P. 6079, succ. Centre-Ville, Montréal, QC H3C 3A7, Canada;2. CIRANO, Montréal, QC, Canada;3. Department of Economics, University of Ottawa, Ottawa, ON K1N 6N5, Canada;4. School of Public Policy and Administration, Department of Economics, Carleton University, Ottawa, ON K1S 5B6, Canada;5. CESifo, Munich, Germany;1. Max Planck Institute of Economics, Kahlaische Str. 10, 07745 Jena, Germany;2. DSE, University of Verona, Via dell''Artigliere 19, Verona, Italy;3. Department of Economics, Lund University, P.O. Box 7082, 220 07 Lund, Sweden;1. Ifo Institute — Leibniz-Institute for Economic Research at the University of Munich, Poschingerstr. 5, D-81679 Munich. Germany;2. University of Erlangen-Nuremberg, Department of Economics, Lange Gasse 20, 90403 Nuremberg, Germany;1. Department of Economics, Kent State University, Kent, OH 44242, USA;2. Department of Economics, Loyola University Maryland, 4501 N. Charles Street, Baltimore, MD 21210, USA |
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| Abstract: | This paper identifies the fiscal instruments that governments can use to promote economic growth when sociopolitical instability (SPI) is present. We show that fiscal policy that takes into account income distribution and SPI transforms a neoclassical growth model into one with both endogenous growth and a poverty trap. Under these circumstances, the growth rate of the economy depends upon SPI, fiscal policy and income distribution. The baseline level of SPI determines an economy's ability to grow. If SPI is high, the economy remains in a poverty trap even if fiscal policy instruments are set appropriately. |
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