Fiscal Choices and Economic Outcomes
Chapter 9: Culture and Institutions
This book has focused primarily on the ﬁscal choices and economic outcomes of the several major types of political regimes. For the same physical, human, and institutional conditions, as summarized in Chapter 4, a nation ruled by an optimal government produces about twice as much output per potential worker and over three times as much average net income as a nation ruled by an autocratic government. The variance of economic output among countries, however, is much higher than can be explained by the structure of the relevant regimes. Almost all the rich nations are now ruled by democratic governments; the only exceptions to this pattern are Hong Kong and Singapore, islands with only limited democracy but blessed with the common law, and those nations with substantial oil wealth. But that is not a suﬃcient basis to determine whether democracy leads to economic prosperity or that prosperity leads to democracy. Moreover, there is a wide variance in economic output per capita among the democracies and a wider variance among all nations than can be explained by the structure of the relevant regime. Gross domestic product per capita in the United States, for example, is about 15 times that in the poorest democracies such as India and nearly 60 times that in the poorest nations, such as Ethiopia, ruled by autocratic governments. A small part of the variance in output per capita is explained by the number of potential workers per capita. Only about 50 percent of the population in the...
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