Political Competition and Economic Performance: Theory and Evidence from the United States

One of the most cherished propositions in economics is that mar-ket competition by and large raises consumer welfare. But whether political competition has similarly virtuous consequences is far less dis-cussed. This paper formulates a model to explain why political compe-tition may enhance economic performance and uses the United States as a testing ground for the model’s implications. It finds statistically robust evidence that political competition has quantitatively impor-tant effects on state income growth, state policies, and the quality of Governors. ∗We would like to thank John Curry from the Bureau of the Census and Jim Snyder for providing data. We are also grateful to Niciola Gennailoi, Michael Smart, David Ström-berg, Guido Tabellini, Gavin Wright and participants in seminars at Stanford, Prince