Is Difference among Political Regimes Significant in Economic Growth? : An Empirical Study

Abstract

Acknowledging the role of institutions in economic growth is a recent trend. Much of the literature that do take political diversity into account also focus on measures such as index on rule of law or democracy index. In this paper, countries are largely divided into two groups, democracy and oligarchy, according to their political systems. However, when distinguishing political regimes, I introduce two other proxies: tax rate and entry barrier to entrepreneurship. In democracies, political power is in the hands of the majority

thus, for more redistribution, tax rates are high and entry barrier to entrepreneurship is low. In contrast, the power is held by the economic elite, or the entrepreneurs, in oligarchies

therefore, tax rates are low and entry barriers are high. This paper presents an empirical model that studies the effect of different political systems on long-run growth. Through fixed-effect regression analysis on panel data, I discuss how high tax rates and low entry barriers, thus more democratic societies, lead to higher economic growth.