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Social capital, government expenditures, and growth

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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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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1307.

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Date of creation: Feb 2012
Date of revision: Feb 2014
Handle: RePEc:upf:upfgen:1307

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Web page: http://www.econ.upf.edu/

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Keywords: Social Capital; Government Expenditures; Education Expenditures; Economic Growth; Elections; Imperfect Information;

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  1. Timothy Besley & Robin Burgess, 2000. "The Political Economy of Government Responsiveness: Theory and Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 28, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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  6. 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.
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  8. James M. Snyder, Jr. & David Strömberg, 2008. "Press Coverage and Political Accountability," NBER Working Papers 13878, National Bureau of Economic Research, Inc.
  9. 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.
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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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