“The Growth Enhancing Benefits of Political Exclusion in Edo Japan” by Weiwen Yin & Austin Mitchell
June 2, 2021 @ 9:00 am – 10:00 am JST
Abstract: Fiscal decentralization is thought to be growth enhancing thanks to inter-jurisdictional competition, information advantages, and preference homogeneity but empirical studies have found mixed results regarding the impact of fiscal decentralization on economic growth. We argue that the variation in growth related to fiscal decentralization partially results from heterogeneity in political institutions. Specifically, the economic consequences of fiscal decentralization depend not only on central-local fiscal relations but also on political centralization which creates subordination of local officials through career incentives. We leverage a unique historical case of Edo Japan that allows us to explore how institutionalized political relations between central and local governments impacted the careers as well as the policy incentives of local officials. Local officials who were politically subordinate to the central government expended their local resources to benefit themselves and the central regime, which reduced long-run economic growth for their subnational divisions. Empirically, we find that local domains ruled by leaders who were excluded from the central government during the Edo Period had higher growth rates compared to domains with leaders who were able to participate in national level politics.