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Social capital, government expenditures, and growth
Ponzetto, Giacomo A. M.; Troiano, Ugo
Universitat Pompeu Fabra. Departament d'Economia i Empresa
Countries with greater social capital have higher economic growth. We show that socialcapital is also highly positively correlated across countries with government expenditureon education. We develop an infinite-horizon model of public spending and endogenousstochastic growth that explains both facts through frictions in political agency whenvoters have imperfect information. In our model, the government provides servicesthat yield immediate utility, and investment that raises future productivity. Voters aremore likely to observe public services, so politicians have electoral incentives to underprovidepublic investment. Social capital increases voters' awareness of all governmentactivity. As a consequence, both politicians' incentives and their selection improve.In the dynamic equilibrium, both the amount and the efficiency of public investmentincrease, permanently raising the growth rate.
Macroeconomics and International Economics
social capital
government expenditures
economic growth
public investment
imperfect information
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