The dynamics of public investment under persistent electoral advantag

Marina Azzimonti

No 91, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: 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.

Date: 2012
New Economics Papers: this item is included in nep-cdm, nep-dge and nep-pol
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Related works:
Journal Article: The dynamics of public investment under persistent electoral advantage (2015)
Working Paper: The dynamics of public investment under persistent electoral advantage (2013)
Working Paper: The dynamics of public investment under persistent electoral advantage (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:91

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More papers in 2012 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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