Political Competition, Policy and Growth: Theory and Evidence from the United States

This paper develops a simple model to analyze how a lack of political competition may lead to policies that hinder economic growth. We test the predictions of the model on panel data for the US states. In these data, we …nd robust evidence that lack of political competition in a state is associated with anti-growth policies: higher taxes, lower capital spending and a reduced likelihood of using right-to-work laws. We also document a strong link between low political competition and low income growth. We would like to thank John Curry from the Bureau of the Census, Jim Snyder, and Ernesto Dal Bó for providing data. We are also grateful to Kjetil Storesletten, three anonymous referees, Jim Alt, Ernesto Dal Bó, Antonio Ciccone, Art Corden, Nicola Gennailoi, Steve Pischke, Michael Reich, Michael Smart, David Strömberg, Guido Tabellini, Gavin Wright and numerous seminar participants for their helpful comments. Besley: Department of Economics, London School of Economics, London WC2A 2AE, England, Email: [email protected]; Persson: Institute for International Economic Studies, Stockholm University, SE-106 91 Stockholm, Sweden, Email: [email protected]; Sturm: Department of Economics, London School of Economics, London WC2A 2AE, England, Email: [email protected].