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- Type of Document: M.Sc. Thesis
- Language: Farsi
- Document No: 47930 (44)
- University: Sharif University of Technology
- Department: Management and Economics
- Advisor(s): Nili, Masoud
- Abstract:
- The procyclical behavior of public investment expenditure in OECs is one of the main channels through which the blessing of the natural resource abundance turns into a curse. The focal issue about the public investment expenditures in OECs is the misallocation and the inefficiency of these expenditures which often appear in the form of white elephants- i.e. government investment projects with large scale and high social/political prestige for the politicians implementing theme, but with negative economic return- especially in the oil booms. Moreover, the imprical evidence shows that the efficiency of public investment management in OECs is positively and significantly correlated with the non-oil TFP which captures the quality of the institutional environment the private sector firms are acting in. In order to develop a theoretical framework for the above stylized facts, we propose a two-period political economy model of electoral competition, in which the politicion in power in each period can allocate the government revenue to two public investment projects: first, investing in infrastructures which acts as a public good and can promote the welfare of all citizens working in private sector, and second, investing in a government project, that is ineficient in comparison with investing in infrastructures but can provide a positive return, not only for the citizens employed in the project (participation rent), but also for the politician implementing it (utility derived from the prestige of the project). It is shown that as long as the non-oil TFP is below some threshold, the politician in power in the first period tends to underinvest in the infrastructures and magnify the scale of the public project up to the point which results in negative economic return, and this tendency increase as the oil rent in the government budget rises. The substitution of investing in infrastructures (good investment) with investing in public project as a white elephant (bad investment) along with the increase in the oil rent, initiates from the commitment problem. The politician in power uses the white elephants as a way of inefficient (re)distribution of the oil rent and the transaction of votes with the economic well being of its clients (clientelism). In this framework, the low non-oil TFP, by increasing the wedge between the participation rent and the private sector income, provides ground for the politician to influence the elction result. The more the citizens care about their economic welfare in comparison with their political prefrences, the clientelistic behavior of the politicians increase. Finally, it is demonstraed that if the survival probability of the dictator is greater than the the reelection probbality of the politicians in democracy, then the procyclical behavior of public investment expenditure in low non-oil TFP economies will be intensified under democracy than under dictatorship
- Keywords:
- Political Economy ; Fiscal Policies ; Procyclicality ; Natural Resource Curse ; Oil Exporting Countries ; Political Economy of Public Finance ; Public Investment Expenditures ; White Elephants Protocals ; Clientelism
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