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Now or later? The political economy of public investment in democracies

Sanjeev Gupta, Estelle X. Liu and Carlos Mulas-Granados

European Journal of Political Economy, 2016, vol. 45, issue C, 101-114

Abstract: This paper explores the impact of elections on public investment. Working with a sample of 67 presidential and parliamentary democracies between 1975 and 2012, we find that the growth rate of nominal public investment is higher at the beginning of electoral cycles and decelerates thereafter. The peak in public investment growth occurs 28 months before elections, and each month closer to the next election the growth rate of public investment declines by 0.7 percentage points. Other political variables, such as cabinet ideology and government fragmentation have less influence on short-term public investment dynamics. Fiscal rules and stronger institutions seem to attenuate the impact of elections on investment, but available information is insufficient to draw definitive conclusions. These results are robust to a number of controls, including for fixed elections.

Keywords: Political economy; Public investment; Elections; Fiscal policy (search for similar items in EconPapers)
Date: 2016
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