Uncertainty, Electoral Incentives and Political Myopia

We study the determinants of political myopia in a rational model of electoral accountability with informational frictions and uncertainty. When politicians' ability is ex ante unknown and policy choices are unobservable, elections improve political accountability and selection. However, incumbents underinvest in costly policies with future returns to signal high ability and increase re-election probability. Surprisingly, uncertainty reduces political myopia and may increase social welfare. We also address the socially optimal political rewards and the desirability of a one-term limit. Our predictions are consistent with several stylised facts and with a new empirical observation: aggregate uncertainty is positively correlated with fiscal discipline. © 2013 Royal Economic Society.