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Social Capital, Government Expenditures, and Growth

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  • Giacomo Ponzetto
  • Ugo Troiano

Abstract

The impact of social capital on economic growth is empirically well documented. Yet the reasons for this relationship remain theoretically understudied. We present a tractable stochastic endogenous growth model that explains how social capital influences economic development. In our model, social capital increases citizens’ awareness of government activity. As a consequence, we find it alleviates the electoral incentives to under-invest in education, whose returns are delayed in time and relatively less visible to voters. In the dynamic equilibrium, higher social capital increases both the amount and the efficiency of public investment in education, permanently raising the growth rate. Our theory predicts that higher and more homogeneously distributed social capital should increase public expenditure on education. We provide suggestive cross-country evidence consistent with these predictions.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 612.

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Date of creation: Feb 2014
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Handle: RePEc:bge:wpaper:612

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Keywords: social capital; government expenditures; economic growth; public investment; education expenditures; elections; imperfect information;

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  1. Edward L. Glaeser & Giacomo A. M. Ponzetto & Jesse M. Shapiro, 2004. "Strategic Extremism: Why Republicans and Democrats Divide on Religious Values," NBER Working Papers 10835, National Bureau of Economic Research, Inc.
  2. James M. Snyder, Jr. & David Strömberg, 2008. "Press Coverage and Political Accountability," NBER Working Papers 13878, National Bureau of Economic Research, Inc.
  3. Giacomo Ponzetto, 2011. "Heterogeneous Information and Trade Policy," Working Papers 596, Barcelona Graduate School of Economics.
  4. Thomas Eisensee & David Strömberg, 2007. "News Droughts, News Floods, and U.S. Disaster Relief," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 693-728, 05.
  5. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  6. Alessandra Bonfiglioli & Gino Gancia, 2010. "The Political Cost of Reforms," UFAE and IAE Working Papers 847.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 30 May 2011.
  7. Tommaso Nannicini & Andrea Stella & Guido Tabellini & Ugo Troiano, 2013. "Social Capital and Political Accountability," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 222-50, May.
  8. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
  9. Timothy Besley & Robin Burgess, 2000. "The political economy of government responsiveness: theory and evidence from India," LSE Research Online Documents on Economics 2308, London School of Economics and Political Science, LSE Library.
  10. Claudio Ferraz & Frederico Finan, 2008. "Exposing Corrupt Politicians: The Effects of Brazil's Publicly Released Audits on Electoral Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 703-745, 05.
  11. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
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Cited by:
  1. Alessandra Bonfiglioli & Gino Gancia, 2012. "Uncertainty, electoral incentives and political myopia," Economics Working Papers 1360, Department of Economics and Business, Universitat Pompeu Fabra.

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