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Political agency model of persistent electoral success with endogenous rents

  • Vukovic, Vuk

The paper presents a political agency model that observes how budgetary decisions on public good production affect the prospects of holding office for an incumbent political party. A simple budgetary function is broadened to include other expenditures such as public sector wages and social transfers so as to present a constraint to rent-extraction. Upon this a ratio of public goods to other expenditures is determined, which the party must keep within certain boundaries set by the voters. Rents are extracted from public good expenditures instead of being exogenously given as a part of a budget, as the party must be able to conceal rent-extraction due to constitutional boundaries. The incumbent’s decision on rents and public good production directly affects the state of the economy upon which the voters decide whether to re-elect the incumbent or not. Incumbents make their decisions based on observing the economic growth shock. For high levels of growth they decide to respect the voter re-election rule, while for low levels they will defect and extract maximum rents. In a repeated game setting an incumbent will always chose the optimal strategy with respect to the observed growth shock. This way, for high enough levels of economic growth an incumbent party may stay in office for an infinite amount of periods and keep maximizing rents with respect to the given constraints, without having to trade-off rents for holding office. The paper presents empirical evidence on United States gubernatorial and state legislature elections from 1992 to 2008 to evaluate the underlining theory.

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File URL: http://mpra.ub.uni-muenchen.de/47386/11/Persistent%20Electoral%20Success%20with%20Endogenous%20Rents.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39085.

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Date of creation: 01 Sep 2011
Date of revision: 25 Jan 2012
Handle: RePEc:pra:mprapa:39085
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  1. Michael Smart & Daniel M. Sturm, 2006. "Term Limits and Electoral Accountability," CEP Discussion Papers dp0770, Centre for Economic Performance, LSE.
  2. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  3. Alesina, Alberto, 1988. "Credibility and Policy Convergence in a Two-Party System with Rational Voters," American Economic Review, American Economic Association, vol. 78(4), pages 796-805, September.
  4. Besley, Timothy & Smart, Michael, 2007. "Fiscal restraints and voter welfare," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 755-773, April.
  5. Antonio Merlo & Andrea Mattozzi, 2005. "Political Careers or Career Politicians?," 2005 Meeting Papers 740, Society for Economic Dynamics.
  6. Claudio Ferraz & Frederico Finan, 2011. "Electoral Accountability and Corruption: Evidence from the Audits of Local Governments," American Economic Review, American Economic Association, vol. 101(4), pages 1274-1311, June.
  7. Tim Besley, 2002. "Political institutions and policy choices: evidence from the United States," IFS Working Papers W02/13, Institute for Fiscal Studies.
  8. List, John & Sturm, Daniel M, 2004. "How Elections Matter: Theory and Evidence from Environmental Policy," CEPR Discussion Papers 4489, C.E.P.R. Discussion Papers.
  9. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
  10. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  11. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, June.
  12. Gagliarducci, Stefano & Nannicini, Tommaso & Naticchioni, Paolo, 2010. "Moonlighting politicians," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 688-699, October.
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