Political Uncertainty, Public Expenditure and Growth

In: European journal of political economy, Band 20, Heft 1, S. 153-179

Abstract

We set out an infinite-horizon political economy model with partisan & office motivation effects in an endogenous growth context to demonstrate that the existence of political uncertainty regarding re-election tends to reduce the amount of public investment by incumbent governments & underlies a switch from government investment to government consumption, thereby reducing growth. The political equilibrium is inefficient & so does not maximise social welfare. Using panel data regressions we show, for OECD countries, that there is empirical support for the hypothesis that political uncertainty tends to reduce public investment, & that there are partisan effects in public investment decisions. 3 Tables, 4 Figures, 3 Appendixes, 47 References. [Copyright 2004 Elsevier B.V.]