Do Re-election Probabilities Influence Public Investment?

An insight from dynamic political economy is that elected officials may use state variables to a ect the choices of their successors. We exploit the staggered timing of local and national elections in Norway to investigate how politicians' re-election probabilities a ect their investments in physical capital. Because popularity is endogenous to politics, we use an instrumental variable approach based on regional movements in ideological sentiment. We nd that higher re-election probabilities stimulate investments, particularly in purposes preferred more strongly by the incumbent parties. This aligns with a theoretical framework where policymakers consider how capital will be complemented by labor in the future.