In this paper we study why the misallocation of resources across different productive sectors tends to persist over time. To this end we propose a general equilibrium model that delivers two structural relations. On the one hand, the public expenditure distribution influences the future sectoral composition of the economy; on the other, the distribution of vested interests across sectors determines public policy decisions. The model predicts that different initial sectoral compositions entail different future streams of public expenditure and therefore different development paths.
Published in 2017 in: Journal of Public Economic Theory, v. 19, 4, pp. 789–810.
