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Policy Myopia

Author

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  • Aidt, T.
  • Dutta, J.
  • Loukoianova, E.

Abstract

This paper develops a theory of policy myopia. Policy myopia arises when rational voters set performance standards that allow elected politicians to distort the portfolio of public investments towards short-term investments. We show that the fact that voters cannot observe immediately how much politicians invested in certain types of public goods is not in itself sufficient to generate policy myopia. Policy myopia, then, arises in societies where electoral control is imperfect or in society where tax revenues cannot be committed in advance. The analysis is motivated by a number of stylized facts about public spending patterns across time and space.

Suggested Citation

  • Aidt, T. & Dutta, J. & Loukoianova, E., 2003. "Policy Myopia," Cambridge Working Papers in Economics 0344, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0344
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe0344.pdf
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    References listed on IDEAS

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    1. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918.
    2. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
    3. Torsten Persson & GĂ©rard Roland & Guido Tabellini, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1163-1202.
    4. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    5. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, January.
    6. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    7. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Aggregating governance indicators," Policy Research Working Paper Series 2195, The World Bank.
    8. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    9. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    10. David Dreyer Lassen, 2000. "Political Accountability and the Size of Government: Theory and Cross-Country Evidence," EPRU Working Paper Series 00-20, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    11. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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    Cited by:

    1. Gabriel Leon, 2013. "Bad Apples: Political Paralysis and the Quality of Politicians," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(3), pages 433-447, June.
    2. Aidt, T.S., 2010. "Corruption and Sustainable Development," Cambridge Working Papers in Economics 1061, Faculty of Economics, University of Cambridge.
    3. Silke Friedrich, 2011. "Policy Persistence and Rent Extraction," ifo Working Paper Series 110, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    Keywords

    Myopia; public goods; electoral accountability;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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