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Capital-intensive projects induce more effort than labor-intensive projects

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  • Amihai GLAZER
  • Stef PROOST

Abstract

Central governments often subsidize capital spending by local governments, instead of subsidizing operating expenses or labor-intensive projects. This paper offers one explanation, focusing on the incentive effects for local officials. a local official can more easily shift the cost of optimizing a project to his successor on a labor-intensive project than on a capital-intensive project.

Suggested Citation

  • Amihai GLAZER & Stef PROOST, 2008. "Capital-intensive projects induce more effort than labor-intensive projects," Working Papers Department of Economics ces0831, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces0831
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    References listed on IDEAS

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    1. John Douglas Wilson, 1990. "Are Efficiency Improvements In Government Transfer Policies Self-Defeating In Political Equilibrium?," Economics and Politics, Wiley Blackwell, vol. 2(3), pages 241-258, November.
    2. Allan Drazen & Nuno Limão, 2004. "Government Gains from Self-Restraint: A Bargaining Theory of Inefficient Redistribution," NBER Working Papers 10375, National Bureau of Economic Research, Inc.
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    4. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    5. Allan Drazen & Nuno Limão, 2008. "A Bargaining Theory Of Inefficient Redistribution Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 621-657, May.
    6. Becker, Gary S & Mulligan, Casey B, 2003. "Deadweight Costs and the Size of Government," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 293-340, October.
    7. Acemoglu, Daron & Robinson, James A., 2001. "Inefficient Redistribution," American Political Science Review, Cambridge University Press, vol. 95(03), pages 649-661, September.
    8. Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-1213, December.
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    12. Brian A. Cromwell, 1989. "Capital subsidies and the infrastructure crisis: evidence from the local mass-transit industry," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 11-21.
    13. Amihai Glazer & Vesa Kanniainen, 2007. "Short-term leaders should make long-term appointments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(1), pages 55-69, February.
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    More about this item

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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