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Public Investment and Re-election Prospects in Developed Countries

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  • Margarita Katsimi

    ()
    (Athens University of Economics and Business and CESifo)

  • Vassilis Sarantides

    ()
    (Department of Economics, The University of Sheffield)

Abstract

A growing body of literature suggests that office-motivated politicians manipulate fiscal policy instruments in order to seek their re-election. This paper directly examines the impact of the electoral manipulation of the level and composition of fiscal policy on incumbents’ re-election prospects. This impact is estimated through a panel of 21 OECD countries over the period of 1972-1999. Our results suggest that increased public investment during the term in office as well as a shift in expenditures toward public investment can improve re-election prospects. To the contrary, results seem to verify the assumption of low visibility of capital spending, since election year manipulation via public investment does not affect re-election prospects. We also find that voters disfavour politicians who create deficits during elections, while deficit creation over the term in office and preceding the election year (when it is financed by equal proportions of public investment and consumption expenditures) does not seem to affect re-election prospects.

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File URL: http://www.shef.ac.uk/economics/research/serps/articles/2013_004.html
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Bibliographic Info

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2013004.

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Length: 26 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:shf:wpaper:2013004

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Keywords: political budget cycles; elections; quality of public expenditure; public investment;

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  1. Toke Aidt & Francisco Veiga & Linda Veiga, 2011. "Election results and opportunistic policies: A new test of the rational political business cycle model," Public Choice, Springer, vol. 148(1), pages 21-44, July.
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  3. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
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  7. Brender, Adi, 2003. "The effect of fiscal performance on local government election results in Israel: 1989-1998," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2187-2205, September.
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  10. Margarita Katsimi & Vassilis Sarantides, 2010. "Do Elections Affect the Composition of Fiscal Policy?," CESifo Working Paper Series 2908, CESifo Group Munich.
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  13. Schuknecht, Ludger, 2000. " Fiscal Policy Cycles and Public Expenditure in Developing Countries," Public Choice, Springer, vol. 102(1-2), pages 115-30, January.
  14. Linda Gonçalves Veiga & Francisco José Veiga, 2006. "Does Opportunism Pay Off?," NIPE Working Papers 5/2006, NIPE - Universidade do Minho.
  15. 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.
  16. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-20, December.
  17. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  18. 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.
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