When Government Spending Serves the Elites: Consequences for Economic Growth in a Context of Market Imperfections

Government spending should be regarded as a social and political phenomenon, not merely as a technical choice. We argue that there is an implicit contract between the organized elites and politicians which often leads to a pro-elite allocation of public resources. A natural and simple taxonomy of government spending follows from this view: spending in public goods broadly defined which mitigate market failures versus spending in non-social subsidies, mainly a vehicle to serve the elites. We theoretically and empirically show that pro-elite spending biases are costly in terms of economic growth. The empirical findings are exceptionally robust.


Issue Date:
2008
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/45875
Total Pages:
58
Series Statement:
Working Papers
WP 08-13




 Record created 2017-04-01, last modified 2018-01-22

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)