Rule of Law and Factor Accumulation, 2005

12-2 Rule of Law and Productivity: Rule of Law  Income … or vice versa?

12-3 Growth of Government Spending, 1870–2005

Copyright © 2009 Pearson Education, Inc. Publishing as Pearson Addison-Wesley 12-4 The Tax Wedge: Inefficiency

Government Corruption Versus GDP per Capita, Does low corruption  Affluence..or vice versa? “I told you not to build roads. Building roads never did anything good.” Mobuto Sese Seko, Zaire Decentralized corruption: a Laffer-curve problem Centralized corruption: Lower rake  higher take.

Democracy and GDP per Capita Does democracy  Income…or vice versa? Barro: Too much democracy slows growth

World Bank: Doing Business, 2010 Rankings: Government: Helping hand…or grabbing hand? Starting up…p. 25 Construction permits…p. 31 Employing workers…p. 38 Registering property…p. 41 Protecting investors…p. 52 Paying taxes…p. 58 Exporting/importing…p. 63 Enforcing contracts…p. 69 Reformers…p. 18 Underground economy

Government Intervention in the Economy Planning and Public Enterprises –Allocating credit –“Infant industry” protection –Subsidies Providing jobs –Marketing boards –Currency controls  black market rates –Interest rate controls  negative real rates  financial repression Redistribution Equity vs. efficiency Kleptocracy Profligacy Budget deficits Inflation/inflation tax