Policy myopia and economic growth
In: European journal of political economy, Band 23, Heft 3, S. 734-753
ISSN: 1873-5703
We develop a theory of second best policy myopia. Policy myopia arises when rational voters allow politicians to bias public investments towards short-term investments. We demonstrate that policy myopia is not an inevitable implication of the fact that voters cannot observe immediately how much their politicians invested in certain types of public goods; rather it is the interaction between observation lags, economic growth and binding revenue constraints that forces rational voters to accept a short-term bias. We argue that growth in government eventually leads to policy myopia. [Copyright 2007 Elsevier B.V.]