Public investment and reelection prospects in developed countries

Abstract

A growing body of literature suggests that office-motivated politicians manipulate fiscal policy instruments in order to enhance their re-election prospects. This paper directly examines the impact of fiscal policy on incumbents' re-election prospects by focusing on the impact of public investment. This impact is estimated using a panel of 20 OECD countries over the period 1972-1999. We find that the level of public investment in the earlier years of an incumbent's term in office improves their re-election prospects, whereas election year manipulation of public investment is neither rewarded nor punished. Our evidence also suggests that, after controlling for the level of deficit and public investment, the level of government revenue both in the election and non-election years does not seem to affect reelection prospects. Moreover, we find that deficit creation during elections and in nonelection years are not rewarded by voters. JEL Classification: D72, E62