Prosperity Without Conflict

Posted: 15 Dec 2009

See all articles by Francisco M. Gonzalez

Francisco M. Gonzalez

University of Calgary - Department of Economics

Hugh M. Neary

University of British Columbia

Date Written: October 1, 2008

Abstract

Social conflict and slow growth are features of many developing economies. This paper considers the role institutions of property rights and conflict management can play in both achieving prosperity and mitigating conflict in these economies. We study how introducing conflict over economic distribution into an otherwise standard model of growth can shape optimal (second-best) taxation policy when diversionary activities cannot be taxed. In this context, we find that the maximization of economic efficiency may call for a reduction in growth in order to mitigate the problem of diversion, even though the economy's growth is inefficiently slow in the absence of taxation. This is so when institutional quality is sufficiently poor, but not otherwise. The paper warns against the conventional justification of growth-promoting policies on efficiency grounds independently of institutions.

Keywords: second best, optimal taxation, institutions, growth, insecure property, conflict, diversion

JEL Classification: D74, E62, H21, O10, O40

Suggested Citation

Gonzalez, Francisco M. and Neary, Hugh, Prosperity Without Conflict (October 1, 2008). Journal of Public Economics, Vol. 92, No. 10, pp. 2170-2181, October 2008, Available at SSRN: https://ssrn.com/abstract=1523795

Francisco M. Gonzalez (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

Hugh Neary

University of British Columbia ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-4505 (Phone)
604-822-5915 (Fax)

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