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Uncertainty, Electoral Incentives and Political Myopia

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  • Alessandra Bonfiglioli
  • Gino Gancia

Abstract

We study the determinants of political myopia in a rational model of electoral accountability where the key elements are informational frictions and uncertainty. We build a framework where political ability is ex-ante unknown and policy choices are not perfectly observable. On the one hand, elections improve accountability and allow to keep well- performing incumbents. On the other, politicians invest too little in costly policies with future returns in an attempt to signal high ability and increase their reelection probability. Contrary to the conventional wisdom, uncertainty reduces political myopia and may, under some conditions, increase social welfare. We use the model to study how political rewards can be set so as to maximise social welfare and the desirability of imposing a one-term limit to governments. The predictions of our theory are consistent with a number of stylised facts and with a new empirical observation documented in this paper: aggregate uncertainty, measured by economic volatility, is associated to better fiscal discipline in a panel of 20 OECD countries.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): (2013)
Issue (Month): (05)
Pages: 373-400

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Handle: RePEc:ecj:econjl:v::y:2013:i::p:373-400

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  1. Andrea Mattozzi & Antonio Merlo, 2007. "Political Careers or Career Politicians?," NBER Working Papers 12921, National Bureau of Economic Research, Inc.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  3. Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
  4. List, John & Sturm, Daniel M, 2004. "How Elections Matter: Theory and Evidence from Environmental Policy," CEPR Discussion Papers 4489, C.E.P.R. Discussion Papers.
  5. Ugo Troiano & Giacomo Ponzetto, 2012. "Social Capital, Government Expenditures, and Growth," 2012 Meeting Papers 1048, Society for Economic Dynamics.
  6. Ponzetto, Giacomo AM, 2011. "Heterogeneous Information and Trade Policy," CEPR Discussion Papers 8726, C.E.P.R. Discussion Papers.
  7. Ferraz, Claudio & Finan, Frederico S., 2008. "Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance," IZA Discussion Papers 3411, Institute for the Study of Labor (IZA).
  8. Conconi, Paola & Facchini, Giovanni & Zanardi, Maurizio, 2011. "Policymakers' Horizon and Trade Reforms," CEPR Discussion Papers 8561, C.E.P.R. Discussion Papers.
  9. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
  10. Marco Buti & Alessandro Turrini & Paul Van den Noord & Pietro Biroli, 2010. "Reforms and re-elections in OECD countries," Economic Policy, CEPR & CES & MSH, vol. 25, pages 61-116, 01.
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Cited by:
  1. Graziano Abrate & Federico Boffa & Fabrizio Erbetta & Davide Vannoni, 2013. "Corruption, Accountability and Efficiency. An Application to Municipal Solid Waste Services," Carlo Alberto Notebooks 316, Collegio Carlo Alberto.

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