Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 16/2009: Do Re-election Probabilities Influence Public Investment?

Jon H. Fiva () and Gisle James Natvik ()
Additional contact information
Jon H. Fiva: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Gisle James Natvik: Norges Bank

Abstract: We identify exogenous variation in incumbent policymakers’ re-election probabilities and explore empirically how this variation affects the incumbents’ investment in physical capital. Our results indicate that a higher re-election probability leads to higher investments, particularly in the purposes preferred more strongly by the incumbents. This aligns with a theoretical framework where political parties disagree about which public goods to produce using labor and predetermined public capital. Key for the consistency between data and theory is to account for complementarity between physical capital and flow variables in government production.

Keywords: Political Economics; Strategic Capital Accumulation; Identifying Popularity Shocks

JEL-codes: E62; H40; H72

49 pages, August 15, 2009

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