The dynamics of public investment under persistent electoral advantag
This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and its subsequent propagation to the economy. The struggle between groups that disagree on targeted transfers results in governments being endogenously short-sighted: Systematic underinvestment in infrastructure and overspending on public goods arise, beyond what is observed in symmetric environments. Because the party enjoying an electoral advantage is less short-sighted, it devotes a larger proportion of revenues to productive investment. Hence, political turnover induces economic fluctuations in an otherwise deterministic environment. I characterize analytically the long-run distribution of allocations, and show that output increases with electoral advantage, despite the fact that governments expand. Volatility is non-monotonic in electoral advantage and is an additional source of inefficiency. Using panel data from US States I confirm these findings, and show that there is an inverted U-shape relation between the volatility of public policy and electoral advantage.
Year of publication: |
2012
|
---|---|
Authors: | Azzimonti, Marina |
Institutions: | Society for Economic Dynamics - SED |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Barriers to investment in polarized societies
Azzimonti, Marina, (2009)
-
The Rise and Expansion of Social Security in the US
Vandenbroucke, Guillaume, (2009)
-
Starving the Leviathan: a Dynamic Analysis of Fiscal Constitutions
Azzimonti, Marina, (2007)
- More ...