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The dynamics of public investment under persistent electoral advantage

Author

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  • Marina Azzimonti-Renzo
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 opposing groups ? that disagree on the composition of public consumption ? results in governments being endogenously short-sighted: Systematic under investment in infrastructure and overspending on public goods arise, as resources are more valuable when in power. Because the party enjoying an electoral advantage is relatively less short-sighted, it devotes a larger proportion of government revenues to productive public investment. Political turnover, together with asymmetric policy choices, induces economic fluctuations in an otherwise deterministic environment. The author characterizes the long-run distribution of capital and shows that output increases on average with political advantage, despite the fact that the size of the government expands as a percentage of GDP. Volatility, on the other hand, is non-monotonic in political power and is an additional source of inefficiency.

Suggested Citation

  • Marina Azzimonti-Renzo, 2011. "The dynamics of public investment under persistent electoral advantage," Working Papers 11-23, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:11-23
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    4. Natvik, Gisle J., 2013. "The political economy of fiscal deficits and government production," European Economic Review, Elsevier, vol. 58(C), pages 81-94.
    5. Grechyna, Daryna, 2021. "Mandatory spending, political polarization, and macroeconomic volatility," European Journal of Political Economy, Elsevier, vol. 68(C).
    6. Azzimonti, Marina & Talbert, Matthew, 2014. "Polarized business cycles," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 47-61.
    7. Garance Genicot & Laurent Bouton & Micael Castanheira, 2021. "Electoral Systems and Inequalities in Government Interventions [“Distributive Politics and Electoral Incentives: Evidence from Seven US State Legislatures.”]," Journal of the European Economic Association, European Economic Association, vol. 19(6), pages 3154-3206.
    8. Marco Bassetto & Leslie McGranahan, 2021. "Mobility, Population Growth, and Public Capital Spending in the United States," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 255-277, July.
    9. Alnahedh, Saad & Alhashel, Bader, 2024. "Firm executive political leanings, Washington, and stock market returns," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 476-491.
    10. Alhashel, Bader S., 2020. "Hail to the chief: The effect of political alignment with the presidency on corporate investment," Research in International Business and Finance, Elsevier, vol. 54(C).
    11. Katarzyna Kopczewska, 2016. "Efficiency of Regional Public Investment: An NPV-Based Spatial Econometric Approach," Spatial Economic Analysis, Taylor & Francis Journals, vol. 11(4), pages 413-431, October.
    12. Grechyna, Daryna, 2023. "Can conflicts unite a nation?," Economic Modelling, Elsevier, vol. 121(C).
    13. Daryna Grechyna, 2021. "Trade openness and political distortions," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 644-663, November.
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    16. Karakas, Leyla D., 2016. "Political turnover and the accumulation of democratic capital," European Journal of Political Economy, Elsevier, vol. 44(C), pages 195-213.
    17. Tamon Asonuma & Hyungseok Joo, 2021. "Public Capital and Fiscal Constraint in Sovereign Debt Crises," School of Economics Discussion Papers 0621, School of Economics, University of Surrey.
    18. Grechyna, Daryna, 2016. "Political frictions and public policy outcomes," Journal of Comparative Economics, Elsevier, vol. 44(3), pages 484-495.
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    20. Karakas, Leyla D., 2017. "Institutional constraints and the inefficiency in public investments," Journal of Public Economics, Elsevier, vol. 152(C), pages 93-101.

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    More about this item

    Keywords

    Political science; Expenditures; Public;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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