Policy myopia and economic growth

We develop a theory of second best policy myopia. Policy myopia arises when rational voters allow politicians to bias public investments towards short-term investments. We demonstrate that policy myopia is not an inevitable implication of the fact that voters cannot observe immediately how much thei...

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Bibliographic Details
Published in:European Journal of Political Economy 2007-09, Vol.23 (3), p.734-753
Main Authors: Aidt, Toke S., Dutta, Jayasri
Format: Article
Language:English
Subjects:
Bias
Economic Development
Economic growth
Economic Policy
Electoral accountability
Government
Government policy
Growth
Myopia
Policy Analysis
Policy making
Politicians
Public goods
Public investment
Voters
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Summary:We develop a theory of second best policy myopia. Policy myopia arises when rational voters allow politicians to bias public investments towards short-term investments. We demonstrate that policy myopia is not an inevitable implication of the fact that voters cannot observe immediately how much their politicians invested in certain types of public goods; rather it is the interaction between observation lags, economic growth and binding revenue constraints that forces rational voters to accept a short-term bias. We argue that growth in government eventually leads to policy myopia.
ISSN:0176-2680
1873-5703
DOI:10.1016/j.ejpoleco.2006.05.002