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Social Capital, Government Expenditures, and Growth

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  • Ugo Troiano

    (Harvard University)

  • Giacomo Ponzetto

    (CREI and Universitat Pompeu Fabra)

Abstract

Countries with greater social capital have higher economic growth. We show that social capital is also highly positively correlated across countries with government expenditure on education. We develop an infinite-horizon model of public spending and endogenous stochastic growth that explains both facts through frictions in political agency when voters have imperfect information. In our model, the government provides services that yield immediate utility, and investment that raises future productivity. Voters are more likely to observe public services, so politicians have electoral incentives to under-provide public investment. Social capital increases voters' awareness of all government activity. As a consequence, both politicians' incentives and their selection improve. In the dynamic equilibrium, both the amount and the efficiency of public investment increase, permanently raising the growth rate.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1048.

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Date of creation: 2012
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Handle: RePEc:red:sed012:1048

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  1. Gino Gancia & Alessandra Bonfiglioli, 2012. "The Political Cost of Reforms," 2012 Meeting Papers 291, Society for Economic Dynamics.
  2. Edward L. Glaeser & Giacomo A. M. Ponzetto & Jesse M. Shapiro, 2004. "Strategic Extremism: Why Republicans and Democrats Divide on Religious Values," Harvard Institute of Economic Research Working Papers 2044, Harvard - Institute of Economic Research.
  3. 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.
  4. Nannicini, Tommaso & Stella, Andrea & Tabellini, Guido & Troiano, Ugo, 2010. "Social Capital and Political Accountability," CEPR Discussion Papers 7782, C.E.P.R. Discussion Papers.
  5. 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.
  6. Giacomo Ponzetto, 2011. "Heterogeneous Information and Trade Policy," Working Papers 596, Barcelona Graduate School of Economics.
  7. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  8. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  9. James M. Snyder & David Strömberg, 2010. "Press Coverage and Political Accountability," Journal of Political Economy, University of Chicago Press, vol. 118(2), pages 355-408, 04.
  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. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
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Cited by:
  1. Alessandra Bonfiglioli & Gino Gancia, 2013. "Uncertainty, Electoral Incentives and Political Myopia," Economic Journal, Royal Economic Society, vol. 0, pages 373-400, 05.

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