The Voracity Effect
AbstractThe 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.
CitationTornell, Aaron, and Philip R. Lane. 1999. "The Voracity Effect." American Economic Review, 89 (1): 22-46. DOI: 10.1257/aer.89.1.22
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- F43 Economic Growth of Open Economies
- O41 One, Two, and Multisector Growth Models