Property Rights and Economic Growth: An Endogenous Growth Mod

In this paper, we develop a Ramsey-type endogenous growth model in which government spending on property rights protection is a major determinant of economic growth. This model includes equations for welfare, private and public sectors production. We introduce the legal efficiency into private production function, and X-inefficiency parameter into public production function. Also, we consider the deficit rule for government rather than balanced budget rule. One contribution of this study is that, we compute the optimal share of property rights protection in Steady-State. The other one is considering the preferences as endogenous rather than exogenous. We show that the effect of property rights protection on economic growth depends on the statues of tax system (tax rate), and government fiscal rule. We calibrate the model by using the Iranian economy data set during 1959-2004. The results show that in order to achieve 2 percent growth rate, the share of government spending on property rights protection should be at least 35 percent. This Figure is 5.8 percent at present.