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The Political Economy of Public Income Volatility: With an Application to the Resource Curse

James A. Robinson, Ragnar Torvik, Thierry Verdier

NBER Working Paper No. 21205
Issued in May 2015
NBER Program(s):The Political Economy Program

We develop a model of the political consequences of public income volatility. As is standard, political incentives create inefficient policies, but we show that making income uncertain creates specific new effects. Future volatility reduces the benefit of being in power, making policy more efficient. Yet at the same time it also reduces the re-election probability of an incumbent and since some of the policy inefficiencies are concentrated in the future, this makes inefficient policy less costly. We show how this model can help think about the connection between volatility and economic growth and in the case where volatility comes from volatile natural resource prices, a characteristic of many developing countries, we show that volatility in itself is a source of inefficient resource extraction.

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Document Object Identifier (DOI): 10.3386/w21205

Published: Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2017. "The political economy of public income volatility: With an application to the resource curse," Journal of Public Economics, Elsevier, vol. 145(C), pages 243-252. citation courtesy of

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