Political uncertainty, public expenditure and growth

Darby, J., Li, C.-W. and Muscatelli, V.A. (2004) Political uncertainty, public expenditure and growth. European Journal of Political Economy, 20(1), pp. 153-179. (doi: 10.1016/j.ejpoleco.2003.01.001)

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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:Articles
Glasgow Author(s) Enlighten ID:Muscatelli, Professor Anton
Authors: Darby, J., Li, C.-W., and Muscatelli, V.A.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Journal of Political Economy
Publisher:Elsevier B.V.
ISSN (Online):1873-5703
Published Online:20 February 2004

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
231581Business Cycles and Long-run Growth: An Investigation for the OECD EconomicsAnton MuscatelliEconomic & Social Research Council (ESRC)R000237816Principal's Office