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Pillars of ProsperityThe Political Economics of Development Clusters$
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Timothy Besley and Torsten Persson

Print publication date: 2011

Print ISBN-13: 9780691152684

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691152684.001.0001

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Legal Capacity

Legal Capacity

(p.103) Chapter 3 Legal Capacity
Pillars of Prosperity

Timothy Besley

Torsten Persson

Princeton University Press

This chapter focuses on the productive role of government in improving the environment for doing business. Improvements in the performance of government are measured as total factor productivity and differences in income across countries can be explained by differences in the quality of their economic institutions. This makes it essential to understand why some countries make the right investments in legal institutions and deploy such legal capacity effectively. A running theme of the chapter is the possibility of a complementarity between the extractive (taxation) and the productive (supporting markets) roles of government. This is at the heart of the empirical observation that market development and state development move hand in hand. But the key insight from this is that we have to understand the incentives of a government to make investments to improve the workings of the economy.

Keywords:   government, business environment, economic policy, total factor productivity, economic institutions

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