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Uncertainty, electoral incentives and political myopia

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  • Alessandra Bonfiglioli
  • Gino Gancia

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Abstract

We study the determinants of political myopia in a rational model of electoral accountability where the key elements are informational frictions and uncertainty. We build a framework where political ability is ex-ante unknown and policy choices are not perfectly observable. On the one hand, elections improve accountability and allow to keep well- performing incumbents. On the other, politicians invest too little in costly policies with future returns in an attempt to signal high ability and increase their reelection probability. Contrary to the conventional wisdom, uncertainty reduces political myopia and may, under some conditions, increase social welfare. We use the model to study how political rewards can be set so as to maximise social welfare and the desirability of imposing a one-term limit to governments. The predictions of our theory are consistent with a number of stylised facts and with a new empirical observation documented in this paper: aggregate uncertainty, measured by economic volatility, is associated to better fiscal discipline in a panel of 20 OECD countries.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1360.

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Date of creation: Oct 2012
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Handle: RePEc:upf:upfgen:1360

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  1. 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.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  3. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
  4. Giacomo Ponzetto & Ugo Troiano, 2014. "Social Capital, Government Expenditures, and Growth," Working Papers 612, Barcelona Graduate School of Economics.
  5. Ferraz, Claudio & Finan, Frederico S., 2008. "Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance," IZA Discussion Papers 3411, Institute for the Study of Labor (IZA).
  6. Ponzetto, Giacomo AM, 2011. "Heterogeneous Information and Trade Policy," CEPR Discussion Papers 8726, C.E.P.R. Discussion Papers.
  7. Mattozzi, Andrea & Merlo, Antonio, 2007. "Political Careers or Career Politicians?," CEPR Discussion Papers 6164, C.E.P.R. Discussion Papers.
  8. Conconi, Paola & Facchini, Giovanni & Zanardi, Maurizio, 2011. "Policymakers' Horizon and Trade Reforms," CEPR Discussion Papers 8561, C.E.P.R. Discussion Papers.
  9. 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.
  10. John A., List & Daniel, Sturm, 2006. "How Elections Matter: Theory and Evidence from Environmental Policy," Discussion Papers in Economics 768, University of Munich, Department of Economics.
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Cited by:
  1. Graziano Abrate & Federico Boffa & Fabrizio Erbetta & Davide Vannoni, 2013. "Corruption, Accountability and Efficiency. An Application to Municipal Solid Waste Services," Working papers 022, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.

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