Political competition, fiscal policy, and economic performance in techno-creative places

Abstract

This paper introduces a model of political competition under distinct institutional regimes to trace the economic performance of what we call “techno-creative places.” Specifically, we analyze how political competition in high-tech places that are creative in the sense of Richard Florida affects fiscal (tax) policy and consequent economic outcomes. There are three stylized groups of actors in our analysis: laborers or workers, techno-creative class members or entrepreneurs, and the elites who make the political decisions. We study two broad institutional-economic scenarios. In the first (second) scenario, the likelihood of political power shifting permanently from the elites to entrepreneurs is an increasing (decreasing) function of the net income of a representative techno-creative entrepreneur. Our study addresses the institutional implications of both scenarios and then comments on the implications of these two scenarios for the welfare of the elites and the techno-creative entrepreneurs.