Sanjeev Gupta, Estelle Liu, and Carlos Mulas-Granados
INTERNATIONAL MONETARY FUND
This paper explores the impact of political and institutional variables on public investment.
Working with a sample of 80 presidential and parliamentary democracies between 1975 and
2012, we find that the rate of growth of public investment is higher at the beginning of
electoral cycles and decelerates thereafter. The peak in public investment growth occurs
between 21 and 25 months before elections. Cabinet ideology and government fragmentation
influence the size of investment booms. More parties in government are associated with
smaller increases in public investment while left-wing cabinets are associated with higher
sustained increases in investment. Stronger institutions help attenuate the impact of elections
on investment, but available information is insufficient to draw definitive conclusions.