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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. Michael Funke & Yu-Fu Chen, 2010. "Booms, recessions and financial turmoil: A fresh look at investment decisions under cyclical uncertainty," Quantitative Macroeconomics Working Papers 21007, Hamburg University, Department of Economics.
  2. Marina Azzimonti, 2013. "The dynamics of public investment under persistent electoral advantage," Working Papers 13-43, Federal Reserve Bank of Philadelphia.
  3. Fossen, Frank M. & Freier, Ronny & Martin, Thorsten, 2014. "Race to the debt trap? Spatial econometric evidence on debt in German municipalities," Discussion Papers 2014/1, Free University Berlin, School of Business & Economics.
  4. Albert Sole-Olle & Elisabet Viladecans-Marsal, 2010. "Lobbying, political competition, and local land supply: recent evidence from Spain," Working Papers in Economics 248, Universitat de Barcelona. Espai de Recerca en Economia.
  5. Alexandre B. Cunha & Emanuel Ornelas, 2014. "Political Competition and the Limits of Political Compromise," CESifo Working Paper Series 4737, CESifo Group Munich.
  6. Jon H. Fiva & Gisle James Natvik, 2009. "Do re-election probabilities influence public investment?," Working Paper 2009/13, Norges Bank.

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