IDEAS home Printed from https://ideas.repec.org/p/red/sed010/334.html
   My bibliography  Save this paper

Do re-election probabilities influence public investment?

Author

Listed:
  • Jon Fiva

    (Universitetet i Oslo)

  • Gisle James Natvik

    (Norges Bank)

Abstract

An insight from dynamic political economy is that elected officials may use state variables to affect the choices of their successors. We exploit the staggered timing of local and national elections in Norway to investigate how politicians’ re-election probabilities affect their investments in physical capital. Because popularity is endogenous to politics, we use an instrumental variable approach based on regional movements in ideological sentiment. We find that higher re-election probabilities stimulate investments, particularly in programs preferred more strongly by the incumbent parties. This aligns with theory where capital and current expenditures are considered complementary inputs to government production. Copyright Springer Science+Business Media, LLC 2013
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Jon Fiva & Gisle James Natvik, 2010. "Do re-election probabilities influence public investment?," 2010 Meeting Papers 334, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:334
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2010/paper_334.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    2. Fernando Ferreira & Joseph Gyourko, 2009. "Do Political Parties Matter? Evidence from U.S. Cities," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 399-422.
    3. Jon Fiva & Jørn Rattsø, 2007. "Local choice of property taxation: evidence from Norway," Public Choice, Springer, vol. 132(3), pages 457-470, September.
    4. Marco Battaglini & Stephen Coate, 2007. "Inefficiency in Legislative Policymaking: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 97(1), pages 118-149, March.
    5. Svaleryd, Helena, 2009. "Women's representation and public spending," European Journal of Political Economy, Elsevier, vol. 25(2), pages 186-198, June.
    6. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
    7. Antràs Pol, 2004. "Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-36, April.
    8. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers ECO2007/37, European University Institute.
    9. Luisa Lambertini, 2003. "Are Budget Deficits Used Strategically?," Boston College Working Papers in Economics 578, Boston College Department of Economics.
    10. Torsten Persson & Lars E. O. Svensson, 1989. "Why a Stubborn Conservative would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 325-345.
    11. Darby, Julia & Li, Chol-Won & Muscatelli, V. Anton, 2004. "Political uncertainty, public expenditure and growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 153-179, March.
    12. Jon Fiva & Gisle Natvik, 2013. "Do re-election probabilities influence public investment?," Public Choice, Springer, vol. 157(1), pages 305-331, October.
    13. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
    14. Olle Folke, 2014. "Shades Of Brown And Green: Party Effects In Proportional Election Systems," Journal of the European Economic Association, European Economic Association, vol. 12(5), pages 1361-1395, October.
    15. Marina Azzimonti, 2011. "Barriers to Investment in Polarized Societies," American Economic Review, American Economic Association, vol. 101(5), pages 2182-2204, August.
    16. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier.
    17. Crain, W. Mark & Tollison, Robert D., 1993. "Time inconsistency and fiscal policy : Empirical analysis of U.S. States, 1969-89," Journal of Public Economics, Elsevier, vol. 51(2), pages 153-159, June.
    18. Christophe Kamps, 2006. "New Estimates of Government Net Capital Stocks for 22 OECD Countries, 1960-2001," IMF Staff Papers, Palgrave Macmillan, vol. 53(1), pages 1-6.
    19. Matz Dahlberg & Eva Mörk, 2011. "Is There an Election Cycle in Public Employment? Separating Time Effects from Election Year Effects," CESifo Economic Studies, CESifo, vol. 57(3), pages 480-498, September.
    20. Alberto Alesina & Guido Tabellini, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 403-414.
    21. Robinson, James A. & Torvik, Ragnar, 2005. "White elephants," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 197-210, February.
    22. Svaleryd, Helena & Vlachos, Jonas, 2009. "Political rents in a non-corrupt democracy," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 355-372, April.
    23. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 1-16.
    24. Linda Veiga & Francisco Veiga, 2007. "Political business cycles at the municipal level," Public Choice, Springer, vol. 131(1), pages 45-64, April.
    25. Toke Aidt & Francisco Veiga & Linda Veiga, 2011. "Election results and opportunistic policies: A new test of the rational political business cycle model," Public Choice, Springer, vol. 148(1), pages 21-44, July.
    26. David S. Lee & Enrico Moretti & Matthew J. Butler, 2004. "Do Voters Affect or Elect Policies? Evidence from the U. S. House," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 807-859.
    27. Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
    28. Tabellini, Guido & Alesina, Alberto, 1990. "Voting on the Budget Deficit," American Economic Review, American Economic Association, vol. 80(1), pages 37-49, March.
    29. Marco Bassetto, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1167-1210.
    30. Toke S. Aidt & Francisco José Veiga & Linda Gonçalves Veiga, 2007. "Election Results and Opportunistic Policies: An Integrated Approach," NIPE Working Papers 24/2007, NIPE - Universidade do Minho.
    31. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    32. Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
    33. Salmon, Pierre, 1987. "Decentralisation as an Incentive Scheme," Oxford Review of Economic Policy, Oxford University Press, vol. 3(2), pages 24-43, Summer.
    34. Natvik, Gisle J., 2013. "The political economy of fiscal deficits and government production," European Economic Review, Elsevier, vol. 58(C), pages 81-94.
    35. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, April.
    36. Federico Revelli, 2005. "On Spatial Public Finance Empirics," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 475-492, August.
    37. Per Pettersson-Lidbom, 2008. "Do Parties Matter for Economic Outcomes? A Regression-Discontinuity Approach," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1037-1056, September.
    38. Hagen, Rune Jansen, 2002. "The electoral politics of public sector institutional reform," European Journal of Political Economy, Elsevier, vol. 18(3), pages 449-473, September.
    39. Glazer, Amihai, 1989. "Politics and the Choice of Durability," American Economic Review, American Economic Association, vol. 79(5), pages 1207-1213, December.
    40. Dahlberg, Matz & Mörk, Eva, 2008. "Is There an Election Cycle in Public Employment? Separating Time Effects from Election Year Effects," Discussion Papers 444, VATT Institute for Economic Research.
    41. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-156, March.
    42. Levitt, Steven D & Snyder, James M, Jr, 1997. "The Impact of Federal Spending on House Election Outcomes," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 30-53, February.
    43. Per Pettersson-Lidbom, 2001. "An Empirical Investigation of the Strategic Use of Debt," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 570-583, June.
    44. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2004. "Factor substitution and factor augmenting technical progress in the US: a normalized supply-side system approach," Working Paper Series 367, European Central Bank.
    45. Allan Drazen & Marcela Eslava, 2005. "Electoral Manipulation via Expenditure Composition: Theory and Evidence," NBER Working Papers 11085, National Bureau of Economic Research, Inc.
    46. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
    47. Borge, Lars-Erik, 2005. "Strong politicians, small deficits: evidence from Norwegian local governments," European Journal of Political Economy, Elsevier, vol. 21(2), pages 325-344, June.
    48. Robert A. J. Dur & Ben D. Peletier & Otto H. Swank, 1999. "Voting on the Budget Deficit: Comment," American Economic Review, American Economic Association, vol. 89(5), pages 1377-1381, December.
    49. Borge, Lars-Erik & Sorensen, Rune J, 2002. "Aggregating Spending Preferences: An Empirical Analysis of Party Preferences in Norwegian Local Governments," Public Choice, Springer, vol. 110(3-4), pages 225-243, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Borck, Rainald & Fossen, Frank M. & Freier, Ronny & Martin, Thorsten, 2015. "Race to the debt trap? — Spatial econometric evidence on debt in German municipalities," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 20-37.
    2. Cunha, Alexandre B. & Ornelas, Emanuel, 2014. "Political competition and the limits of political compromise," LSE Research Online Documents on Economics 60273, London School of Economics and Political Science, LSE Library.
    3. Yu-Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(s1), pages 290-317, July.
    4. Solé-Ollé, Albert & Viladecans-Marsal, Elisabet, 2012. "Lobbying, political competition, and local land supply: Recent evidence from Spain," Journal of Public Economics, Elsevier, vol. 96(1), pages 10-19.
    5. Jon Fiva & Gisle Natvik, 2013. "Do re-election probabilities influence public investment?," Public Choice, Springer, vol. 157(1), pages 305-331, October.
    6. Marina Azzimonti, 2015. "The dynamics of public investment under persistent electoral advantage," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 653-678, July.
    7. Gupta, Sanjeev & Liu, Estelle X. & Mulas-Granados, Carlos, 2016. "Now or later? The political economy of public investment in democracies," European Journal of Political Economy, Elsevier, vol. 45(C), pages 101-114.
    8. Masahiro Tanaka, 2015. "Measuring Political Budget Cycles: A Bayesian Semiparametric Assessment," Working Papers 1415, Waseda University, Faculty of Political Science and Economics.
    9. repec:sgh:gosnar:y:2016:i:6:p:95-114 is not listed on IDEAS
    10. Marina Azzimonti, 2015. "The dynamics of public investment under persistent electoral advantage," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 653-678, July.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed010:334. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.