For decades economists have warned that low levels of public investment in education, health, infrastructure, and security would weaken a country’s economic growth and delay its social development. Unfortunately, that describes many Latin American and Caribbean countries. From 1980 to 2016, public investment in the region grew by almost 10 percentage points slower than in advanced economies, according to a recent IDB flagship report. Staying on the current course would jeopardize the region’s prosperity and the wellbeing of its citizens.
One possible explanation for the phenomenon is that many governments lack the technical capacity to plan public investments, causing them to prioritize simpler but less effective forms of spending, such as cash transfers or subsidies. Another possibility is that voters may themselves prefer less public investment. That premise is explored in a new study that finds that voters with low trust in others, doubting promises made to them, and voters who are impatient, opting for smaller short-term benefits over higher long-term gains, place fewer demands on their governments to invest. Low trust and high impatience turn out to be salient characteristics of the average voter in many Latin American and Caribbean countries.
A Survey of Spending Preferences
The study is based on an original survey of voter spending preferences that was fielded in seven Latin American capitals through the Latin American Public Opinion Project (LAPOP) at Vanderbilt University. Voters were asked about their preferences for three types of public spending: spending with immediate and certain benefits, such as direct monetary transfers; short-term public goods (or public consumption), with immediate but uncertain benefits, such as the purchase of new equipment; and long-term public goods (or public investment), with uncertain and future benefits, such as training programs and infrastructure investments. The survey offered respondents binary choices of hypothetical spending options, varying the uncertainty and timing of their benefits. For example, respondents chose between a tax credit that would allow them or their families to spend more on education (more certain benefits), and a tax increase that would fund public education (more uncertain benefits). They also chose between spending on hiring additional public employees (current benefits) and training existing employees (future benefits).
The data show that in two separate policy domains, education and security, respondents with low political trust or low interpersonal trust are more supportive of transfers at the expense of public goods. Respondents with high impatience are similarly more supportive of transfers. And they prefer short-term spending (transfers and public consumption) over long-term spending (public investment). In the absence of transfers, on the other hand, political mistrust and risk aversion can shift voter demand from current to investment spending, e.g., from teacher hiring to teacher training, because their impact is higher in the short term. Finally, low-income voters are less willing to support public investment because they need short-term cash transfers more.
Experiments with Public Investment
Two randomized experiments designed to increase demand for public investment generate further evidence on the role of trust and patience. Mistrustful and impatient voters should be relatively less responsive to improvements in public investment because they value the additional benefits less. The experimental evidence supports that idea. In the first experiment, respondents were randomly assigned a treatment in which they were told that public investment spending has a relatively higher return. The results show that low-trust respondents are less sensitive to the treatment, registering a smaller shift in their demand for investment, about half the size. In the other experiment, respondents were randomly assigned different time horizons (two or four years) for receiving the same benefits from public investment spending. Impatient respondents were less willing to increase their support for the public investment with faster (two year) returns.
Preconditions for Strong Voter Demand
Policymakers seeking to maximize social welfare need to understand what causes low trust in politicians’ electoral promises and the factors that might mitigate it. This year’s IDB flagship report shows that some of these determinants operate at the individual voter level, while others may be more systemic. When it comes to individual preferences, a lack of accurate information could be pivotal. Therefore, behavioral interventions, such as reminding voters of how public investments are critical to economic growth and social development, could make a difference. The systemic component seems more complex. It may be rooted in norms of social trust shaped by historical experiences, such as violence. Or, it may be explained by perceptions of low government performance. Low trust in the ability of government to fulfill promises over the long-term may give political candidates electoral incentives to adopt short-term policies, even if they are less efficient. Or it may cause only candidates who prefer short-term inefficient policies to enter politics. Low government performance in turn reinforces voters’ low trust.
At the same time, a stable macroeconomic environment — i.e., low inflation, low unemployment, low crime and financial and political stability — can positively affect individuals’ risk aversion and time impatience. Income can also be a significant factor explaining a preference for short-term monetary transfers, as these solve the most basic and urgent needs. Governments that increase incomes in an equitable way might reduce citizens’ focus on short-term transfers. But ultimately the main lesson from this research is that when citizens perceive that the government is operating efficiently and can deliver public goods effectively, they are more likely to vote for candidates that favor high public investment.