Choosing Not to Grow: How Bad Policies can be Outcomes of Dynamic Voting Equilibria Pubblico Deposited

Creator Series Date Created
  • 1992-07
  • Some economic policies and regulations seem to have only one purpose: to prevent technological development and economic growth from occurring. In this paper, we attempt to rationalize such policies as outcomes of voting equilibria. In our environment, some agents will be worse off if the economy grows, since their skills are complementary to resources that can be allocated to growth-stimulating activities. In the absence of arrangements where votes are traded, we show that for some initial skill distributions, the economy may stagnate due to growth-preventing policies. Different initial skill distributions, however, lead to voting outcomes and policies in support of technological development, and to persistent economic growth. In making our argument formally, we use a dynamic model with induced heterogeneity in agents' skills. In their voting decisions, agents compare how they will be affected under each policy alternative, and then vote for the policy that maximizes their welfare.

Subject (JEL) Date Modified
  • 07/15/2019
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department.
  • Federal Reserve Bank of Minneapolis
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