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Capital-Intensive Projects Induce More Effort Than Labor-Intensive Projects

  • Amihai Glazer

    ()

    (Department of Economics, University of California-Irvine)

  • Stef Proost

    ()

    (Center for Economics Studies, Katholieke Universiteit Leuven)

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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File URL: http://www.economics.uci.edu/files/docs/workingpapers/2008-09/glazer-13.pdf
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Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 080913.

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Length: 13pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:irv:wpaper:080913
Contact details of provider: Postal: Irvine, CA 92697-3125
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Web page: http://www.economics.uci.edu/

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  1. 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.
  2. Alberto Alesina & Guido Tabellini, 2003. "Bureaucrats or Politicians?," Harvard Institute of Economic Research Working Papers 2009, Harvard - Institute of Economic Research.
  3. 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.
  4. 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.
  5. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  6. Acemoglu, Daron & Robinson, James A, 1999. "Inefficient Redistribution," CEPR Discussion Papers 2122, C.E.P.R. Discussion Papers.
  7. 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.
  8. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
  9. Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-13, December.
  10. Gary S. Becker & Casey B. Mulligan, 1998. "Deadweight Costs and the Size of Government," NBER Working Papers 6789, National Bureau of Economic Research, Inc.
  11. 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.
  12. 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.
  13. 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.
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