This paper investigates the relationship between political instability and per capita GDP growth in a sample of 113 countries for the period 1950-1982. We define "political instability" as the propensity of a government collapse, and we estimate a model in which political instability and economic growth are jointly determined. The main result of this paper is that in countries and time periods with a high propensity of government collapse, growth is significantly lower than otherwise. This effect remains strong when we restrict our definition of "government change" to cases of substantial changes of the government.

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Data for the United States and countries in Western Europe indicate a negative correlation between the dependency ratio and labor tax rates and the generosity of social transfers, after controlling for other factors that influence the size of the welfare state. This is despite the increased political clout of the dependent population implied by the aging of the population. This paper develops an overlapping generations model of intra-and inter-generational transfers (including old-age social security) and human capital formation which addresses this seeming puzzle. We show that with democratic voting, an increase in the dependency ratio can lead to lower taxes or less generous social transfers.

The extent of taxation and redistribution policy is generally determined as a political-economy equilibrium by a balance between those who gain from higher taxes/transfers and those who lose. In a stylized model of migration and human capital formation we show-somewhat against the conventional wisdom-that low-skill immigration may lead to a lower tax burden and less redistribution than would be the case with no immigration, even though migrants (naturally) join the pro-tax/transfer coalition. Data on eleven European countries over the period 1974 to 1992 are consistent with the implications of the theory: A higher share of immigrants in the population leads to a lower tax rate on labor income, even after controlling for the generosity and size of the welfare state, demographics, and the international exposure of the economy. As predicted by the theory, it is the increased share of low education immigrants that leads to the smaller tax burden.