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A political foundation of public investment and welfare spending
Author(s) -
Villamil Anne,
Wang Xiaobing,
Xue Ning
Publication year - 2021
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12519
Subject(s) - economics , authoritarianism , investment (military) , welfare , politics , incentive , democracy , public economics , foundation (evidence) , economic system , market economy , political science , law
Abstract This paper develops a political economy model to examine the implications of political selection under an authoritarian regime. We formalize the fiscal policy choice of local governments, focusing on two political selection mechanisms and their implications for public investment and welfare spending. A growth‐oriented promotion system induces local officials to increase public investment, which may increase output but crowd out welfare transfers. This mimics the recent investment‐driven growth in China and relatively low effort to tackle high inequality. Under a broader incentive structure, we show that it is possible for an authoritarian regime to attain the social welfare of a democracy.