POLITICAL INSTITUTIONS AND ECONOMIC GROWTH*

We analyze the impact of micro-founded political institutions on economic growth in an overlapping-generations economy, where individuals differ in preferences over a public good (as well as in age). Labour- and capital taxes finance the public good and a public input. The benchmark institution is a parliament, where all decisions are taken. Party entry, parliamentary composition, coalition formation, and bargaining are endogenous. We compare this constitution to separation of powers, where a spending minister (elected in parliament or appointed by the largest party). Separation of powers tend to yield lower growth, mainly due to the occurrence of production inefficiency