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

We formulate a model to explain why the lack of political com-petition may stifle economic performance and use the United States as a testing ground for the model’s predictions, exploiting the 1965 Voting Rights Act which helped break the near monpoly on political power of the Democrats in southern states. We find statistically ro-bust evidence that changes in political competition have quantitatively important effects on state income growth, state policies, and quality of Governors. By our bottom-line estimate, the increase in political competition triggered by the Voting Rights Act raised long-run per capita income in the average affected state by about 20 percent. ∗We would like to thank John Curry from the Bureau of the Census and Jim Snyder for providing data. We are also grateful to Jim Alt, Nicola Gennailoi, Jörg-Steffen Pis