I thank two anonymous referees and the seminar participants at MIT, Oxford University, Tilburg University and the University of Zurich for helpful comments.
Government Revenues and Economic Growth in Weakly Institutionalised States*
Version of Record online: 11 MAR 2010
© The Author(s). Journal compilation © Royal Economic Society 2010
The Economic Journal
Volume 120, Issue 545, pages 631–650, June 2010
How to Cite
Oechslin, M. (2010), Government Revenues and Economic Growth in Weakly Institutionalised States. The Economic Journal, 120: 631–650. doi: 10.1111/j.1468-0297.2009.02349.x
- Issue online: 1 JUN 2010
- Version of Record online: 11 MAR 2010
- Submitted: 29 August 2007 Accepted: 5 January 2009
The lack of sustained growth in poor countries has often been attributed to ‘fiscal weakness’. Empirical evidence suggests that governments often fail to provide crucial public goods. I argue that this failure may be the result of a political instability effect: more resources fuel power struggles among competing elites – and decrease the incumbent regime's time horizon in office. But with a shorter time horizon, it is less attractive to finance growth-promoting institutions whose returns only accrue in the future. The model further predicts the instability effect to be stronger in countries with little capital or in remote places which render technology adoption expensive.