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Political uncertainty, public expenditure and growth

Darby, J. and Li, C.W. and Muscatelli, A.V. (2004) Political uncertainty, public expenditure and growth. European Journal of Political Economy, 20 (1). pp. 153-179. ISSN 0176-2680

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We set out an infinite-horizon political economy model with partisan and 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 and underlies a switch from government investment to government consumption, thereby reducing growth. The political equilibrium is inefficient and 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, and that there are partisan effects in public investment decisions.

Item type: Article
ID code: 3909
Keywords: public investment, endogenous growth, ecomomic growth, political economy, Economic Theory, Economics and Econometrics, Political Science and International Relations
Subjects: Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Depositing user: Strathprints Administrator
Date Deposited: 23 Aug 2007
Last modified: 21 May 2015 08:46

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