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Uncertainty, Electoral Incentives and Political Myopia

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  • Alessandra Bonfiglioli

    ()

  • Gino Gancia

    ()

Abstract

In this paper, 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 ...scal discipline in a panel of 20 OECD countries.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 915.12.

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Length: 36
Date of creation: 05 Oct 2012
Date of revision:
Handle: RePEc:aub:autbar:915.12

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  1. Ponzetto, Giacomo AM & Troiano, Ugo, 2014. "Social Capital, Government Expenditures, and Growth," CEPR Discussion Papers 9891, C.E.P.R. Discussion Papers.
  2. 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.
  3. Paola Conconi & Giovanni Facchini & Maurizio Zanardi, 2011. "Policymakers’ Horizon and Trade Reforms," Development Working Papers 311, Centro Studi Luca d\'Agliano, University of Milano.
  4. Ponzetto, Giacomo AM, 2011. "Heterogeneous Information and Trade Policy," CEPR Discussion Papers 8726, C.E.P.R. Discussion Papers.
  5. Claudio Ferraz & Frederico Finan, 2009. "Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance," NBER Working Papers 14906, National Bureau of Economic Research, Inc.
  6. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  7. Andrea Mattozzi & Antonio Merlo, 2005. "Political Careers or Career Politicians?," PIER Working Paper Archive 05-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Dec 2005.
  8. 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.
  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. 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.
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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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