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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Citations: View citations in EconPapers (1)

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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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