The Dynamics of Public Investment Under Persistent Electoral Advantage

45 Pages Posted: 23 Nov 2013

See all articles by Marina Azzimonti

Marina Azzimonti

SUNY Stony Brook - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2013

Abstract

This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and their subsequent propagation to the economy. The struggle between groups that disagree on targeted public spending (e.g., pork) results in governments being endogenously short-sighted: Systematic underinvestment in infrastructure and overspending on targeted goods arise, above and 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 longrun 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.

Keywords: Public Investment, Political Cycles, Time Consistency, Electoral Advantage,

JEL Classification: E61, E62, H11, H29, H41, O23

Suggested Citation

Azzimonti, Marina, The Dynamics of Public Investment Under Persistent Electoral Advantage (November 1, 2013). FRB of Philadelphia Working Paper No. 13-43, Available at SSRN: https://ssrn.com/abstract=2358409 or http://dx.doi.org/10.2139/ssrn.2358409

Marina Azzimonti (Contact Author)

SUNY Stony Brook - Department of Economics ( email )

NY 11733-4384
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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