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Persistent electoral success with endogenous rents

Vukovic, Vuk (2013): Persistent electoral success with endogenous rents.

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Abstract

The paper examines how is it possible for an incumbent political party to stay in power for long periods of time without having to trade-off rents for holding office. It presents a new way of explaining and measuring the real effects of rent-extraction on political re-election in local government. It models local government due to the different and exact way rent-extraction can be measured there; through pork-barrel spending on public goods upon which a political party is able to extract rents. By setting rents as an endogenous variable the paper alters certain typical assumptions of political agency models, which permits it to evaluate their effect on political re-election and preservation of power in a more realistic scenario of politics. The incumbent’s decision on budget redistribution and rent-extraction directly affects the state of the economy upon which the voters decide whether to re-elect the incumbent or not. Incumbents make their decisions based on observing a stochastic growth shock which affects the next period budget redistribution. In a repeated game setting an incumbent chooses an optimal strategy with respect to the observed shock. This way, for high enough levels of economic growth an incumbent party may stay in office for an infinite amount of periods and keep maximizing rents with respect to the given constraints, without having to trade-off rents for holding office. The paper presents empirical evidence on United States gubernatorial and state legislature elections from 1992 to 2008 to evaluate the underlining theory.

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