Productive government spending, growth, and sequential voting

Abstract

This paper considers an endogenous growth model with productive government spending in which overlapping generations of agents vote sequentially on policy. With sequential majority voting, there is a multiplicity of politico-economic equilibria originating from self-fulfilling policy expectations. Some of these equilibria are Pareto-inefficient and there are endogenous cycles. A constitutional rule providing partial commitment significantly shrinks the set of politico-economic equilibria, removing all inefficiencies and cycles. However, a likely outcome is that government size is too high relative to the growth-maximizing size.