Citation

Discussion Paper Details

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Title: Social Capital, Government Expenditures, and Growth

Author(s): Giacomo AM Ponzetto and Ugo Troiano

Publication Date: March 2014

Keyword(s): Economic Growth, Education Expenditures, Elections, Government Expenditures, Imperfect Information and Social Capital

Programme Area(s): Development Economics, International Macroeconomics and Public Economics

Abstract: This paper shows that social capital increases economic growth by raising government investment in human capital. We present a model of stochastic endogenous growth with imperfect political agency. Only some people correctly anticipate the future returns to current spending on public education. Greater social diffusion of information makes this knowledge more widespread among voters. As a result, we find it alleviates myopic political incentives to underinvest in human capital, and it helps the selection of politicians that ensure high productivity in public education. Through this mechanism, we show that social capital raises the equilibrium growth rate of output and reduces its volatility. We provide evidence consistent with the predictions of our model. Individuals with higher social capital are more informed about their government. Countries with higher social capital spend a higher share of output on public education.

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Bibliographic Reference

Ponzetto, G and Troiano, U. 2014. 'Social Capital, Government Expenditures, and Growth'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9891