Bureaucratic Choice and Endogenous Growth

This paper analyzes the effects on the growth rate and economic welfare if the social planner engages in selfish behavior. These effects are displayed in a model of endogenous growth with productive governmental spending. The budget maximizing social planner determines how the public input is to be financed. The integration of selfish behavior by the social planner into a dynamic context combines the endogenous growth theory with the public choice theory. It will be shown that selfish behavior by the planner does not automatically lead to a sub-optimal supply level of the public good with an ensuing welfare loss. Although maximizing his personal utility, the planner may realize an efficient provision. Rather, the consequences of selfish behavior on welfare significantly depend on the formulation of the planner's personal preferences.