NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Social Capital, Government Expenditures and Growth

Giacomo A.M. Ponzetto, Ugo Troiano

NBER Working Paper No. 24533
Issued in April 2018
NBER Program(s):Development Economics, Economics of Education, Economic Fluctuations and Growth, Public Economics, Political Economy

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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Document Object Identifier (DOI): 10.3386/w24533

 
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