Now or Later? The Political Economy of Public Investment in Democracies

By Sanjeev Gupta, Miss Estelle X Liu, Carlos Mulas-Granados

July 27, 2015

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Format: Chicago

Sanjeev Gupta, Miss Estelle X Liu, and Carlos Mulas-Granados. Now or Later? The Political Economy of Public Investment in Democracies, (USA: International Monetary Fund, 2015) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper explores the impact of political and institutional variables on public investment. Working with a sample of 80 presidential and parliamentary democracies between 1975 and 2012, we find that the rate of growth of public investment is higher at the beginning of electoral cycles and decelerates thereafter. The peak in public investment growth occurs between 21 and 25 months before elections. Cabinet ideology and government fragmentation influence the size of investment booms. More parties in government are associated with smaller increases in public investment while left-wing cabinets are associated with higher sustained increases in investment. Stronger institutions help attenuate the impact of elections on investment, but available information is insufficient to draw definitive conclusions.

Subject: Current spending, Expenditure, Fiscal policy, Fiscal rules, Public debt, Public investment spending

Keywords: Budget balance, Current spending, Election, Elections, Fiscal rules, Fragmentation, Government fragmentation, Ideology, Investment boom, Investment decision, Investment growth, Number, Political economy, Public Investment, Public investment spending, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/175
Stock No:

WPIEA2015175
ISBN:

9781513583853
ISSN:

1018-5941

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