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Do Re-election Probabilities Influence Public Investment?

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  • Jon H. Fiva
  • Gisle James Natvik

Abstract

We identify exogenous variation in incumbent policymakers' re-election probabilities and explore empirically how this variation affects the incumbents' investment in physical capital. Our results indicate that a higher re-election probability leads to higher investments, particularly in the purposes preferred more strongly by the incumbents. This aligns with a theoretical framework where political parties disagree about which public goods to produce using labor and predetermined public capital. Key for the consistency between data and theory is to account for complementarity between physical capital and flow variables in government production.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2709.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2709

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Keywords: political economics; strategic capital accumulation; identifying popularity shocks;

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Cited by:
  1. Marina Azzimonti, 2013. "The dynamics of public investment under persistent electoral advantage," Working Papers 13-43, Federal Reserve Bank of Philadelphia.
  2. Yu-Fu Chen & Michael Funke, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," CESifo Working Paper Series 2759, CESifo Group Munich.
  3. Albert Solé-Ollé & Elisabet Viladecans-Marsal, 2010. "Lobbying, political competition, and local land supply: recent evidence from Spain," Working Papers 2010/45, Institut d'Economia de Barcelona (IEB).
  4. Jon H. Fiva & Gisle James Natvik, 2009. "Do re-election probabilities influence public investment?," Working Papers 2009/36, Institut d'Economia de Barcelona (IEB).
  5. Frank M. Fossen & Ronny Freier & Thorsten Martin, 2014. "Race to the Debt Trap? Spatial Econometric Evidence on Debt in German Municipalities," Discussion Papers of DIW Berlin 1358, DIW Berlin, German Institute for Economic Research.
  6. Chen, Yu-Fu & Funke, Michael, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2009-31, Scottish Institute for Research in Economics (SIRE).
  7. Alexandre B. Cunha & Emanuel Ornelas, 2014. "Political Competition and the Limits of Political Compromise," CESifo Working Paper Series 4737, CESifo Group Munich.

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