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American Economic Review: Vol. 89 No. 1 (March 1999)

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The Voracity Effect

Article Citation

Tornell, Aaron, and Philip R. Lane. 1999. "The Voracity Effect." American Economic Review, 89(1): 22-46.

DOI: 10.1257/aer.89.1.22

Abstract

The authors analyze 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. The authors also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks.

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Authors

Tornell, Aaron (Harvard U and NBER)
Lane, Philip R. (Trinity College, Dublin and CEPR)

JEL Classifications

O17: Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
F43: Economic Growth of Open Economies
O41: One, Two, and Multisector Growth Models


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