Policy Distortion as a Signaling Tool: The Case of US Environmental Expenditure

Helia Costa (Toulouse School of Economics)

18 septembre 2017, 09h00–11h00


Salle MF 323

Environment Economics Seminar


This paper explores the mechanism behind election-year spending distortions. It develops a two-period model of electoral competition where politicians use current policies as pork barrel to signal their preferences to uninformed voters. There exists an equilibrium where pork barrel distortions arise for signaling purposes. They are directed at ideologically homogeneous groups, as they are more easily swayed, and are mitigated if the incumbent is a \lame duck" or has a high discount rate. The predictions of the model are tested using data on US state level environmental expenditures. The empirical results show support for the signaling motive as a central mechanism in generating expenditure patterns that follow the political cycle, with implications for the effectiveness of environmental policy.

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