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

  • Amihai GLAZER
  • Stef PROOST

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.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0831.

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Date of creation: Dec 2008
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Handle: RePEc:ete:ceswps:ces0831
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  1. Alesina, Alberto F & Tabellini, Guido, 2004. "Bureaucrats or Politicians?," CEPR Discussion Papers 4252, C.E.P.R. Discussion Papers.
  2. Gary S. Becker & Casey B. Mulligan, 1998. "Deadweight Costs and the Size of Government," NBER Working Papers 6789, National Bureau of Economic Research, Inc.
  3. 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.
  4. Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
  5. Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-13, December.
  6. Coate, Stephen & Morris, Stephen, 1995. "On the Form of Transfers in Special Interests," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1210-35, December.
  7. Acemoglu, Daron & Robinson, James A, 1999. "Inefficient Redistribution," CEPR Discussion Papers 2122, C.E.P.R. Discussion Papers.
  8. Amihai Glazer & Vesa Kanniainen, 2007. "Short-term leaders should make long-term appointments," International Tax and Public Finance, Springer, vol. 14(1), pages 55-69, February.
  9. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  10. 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.
  11. 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.
  12. K. Obeng & R. Sakano, 2000. "The Effects of Operating and Capital Subsidies on Total Factor Productivity: A Decomposition Approach," Southern Economic Journal, Southern Economic Association, vol. 67(2), pages 381-397, July.
  13. Allan Drazen & Nuno Lim�o, 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, 05.
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