Public Spending Distribution, Regionalism, and Growth

Abstract

In this paper we analyze the connection between the distribution of public spending across professions and economic growth. We present a general equilibrium model of overlapping generations with profession- Specific human capital accumulation. The distribution of public resources across professions affects aggregate efficiency, but its evolution through time generates conflicts of interests among corporativist professionals. Economies with higher professional variety are more likely to experience political blockages of growth-enhancing reforms and delays in the development path. Regionalism, i.e., the partition of a profession-heterogeneous economy into profession-homogeneous regions, may compensate for the distortions induced by corporativism. This helps disentangling the different effects of decentralization on economic growth.