Distributive Politics, Nature of Government Spending and Economic Growth in a Low Income Democracy

19 Pages Posted: 25 May 2011

Abstract

In this paper we analyze how the government in a democratic setup of the developing world manipulates the fiscal instruments to maximize its political gain so that it can retain power. The government and the voters in low income countries are generally selfish and myopic in the sense that the electorates prefer to get direct and immediate benefits from the government while the government, in turn, tries to seek majority support in the election, by adopting short term and distributive policies instead of going for long term growth. Using the theoretical structure of the existing literature, and making modifications therein, this study demonstrates that the optimal tax rate, public expenditure shares and growth rate are determined in terms of technological and behavioral parameters. The simulation results show that if political gain from distributive policies is high, the government will allocate a greater share of the fund for distributive purposes adversely affecting economic growth.

Keywords: selfish government, fiscal instruments, distributive policies, political gain, long term growth

Suggested Citation

Sasmal, Joydeb, Distributive Politics, Nature of Government Spending and Economic Growth in a Low Income Democracy. Journal of Economics, Finance & Administrative Science, Vol. 16, No. 30, 2011, Available at SSRN: https://ssrn.com/abstract=1848268

Joydeb Sasmal (Contact Author)

University of Calcutta ( email )

Senate House, 87/1 College Street
Bagnan
Kolkata, West Bengal 700073
India

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