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Lobbying, the Composition of Government Expenditures, and the Politics of Fiscal Policy
Author(s) -
Ghate Chetan
Publication year - 2001
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00117
Subject(s) - economics , fiscal policy , government (linguistics) , endogenous growth theory , politics , growth model , overlapping generations model , macroeconomics , market economy , linguistics , philosophy , political science , law , human capital
This paper constructs a one sector growth model to examine the impact of political lobbying on the formation of fiscal policy. The model predicts that lobbying can induce endogenous regime switches, development traps, and a sub‐optimal allocation of government expenditures between productive and unproductive ends, leading to long run income losses in the economy. A calibrated version of the model is used to generate estimates of the dynamic social costs of lobbying by estimating the optimal savings rates necessary to induce balanced growth in the economy. Finally, the model predicts that lobbying may influence the growth of government.