Working Paper: CEPR ID: DP2001
Authors: Aaron Tornell; Philip R. Lane
Abstract: We analyse an economy that lacks a strong legal-political institutional infrastructure and is populated by multiple powerful groups. Powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock. In equilibrium, this leads to slow economic growth and a 'voracity effect', by which a shock, such as a terms of trade windfall, perversely generates a more than proportionate increase in fiscal redistribution and reduces growth. We also show that a dilution in the concentration of power leads to faster growth and a less pro-cyclical response to shocks.
Keywords: economic growth; voracity; natural resources; terms of trade; differential games
JEL Codes: F43; 010; 023; 040
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weak institutions + fractionalization (O17) | slower economic growth (F69) |
| weak institutions (O17) | increased competition among groups (D70) |
| increased competition among groups (D70) | higher fiscal redistribution (H39) |
| higher fiscal redistribution (H39) | lower growth outcomes (O40) |
| dilution in power concentration (L94) | improved economic performance (O49) |
| increase in the number of powerful groups (D70) | diminished aggregate appropriation rate (H72) |
| diminished aggregate appropriation rate (H72) | higher growth rate (O42) |
| positive productivity shocks (O49) | heightened appropriation demands (H61) |
| heightened appropriation demands (H61) | lower overall growth (O40) |