Abstract
We examine whether fiscal rules constrain incumbent governments to use fiscal policy for re-election purposes. Using data on fiscal rules provided by the IMF for a sample of 77 (advanced and developing) countries over the 1984-2015 period, we find that after the Global Financial Crisis political budget cycles occur only in countries with weak fiscal rules. This conclusion is robust for the inclusion of other conditioning factors for political budget cycles identified in the literature (such as media freedom, the presence of checks and balances, and the maturity of democracy) and for controlling for the potential endogeneity of fiscal rules.
Highlights
The political budget cycle (PBC) literature focuses on election cycles in government spending, taxation and budget deficits
Using data on fiscal rules provided by the IMF for a sample of 77 countries over the 1984–2015 period, we find that strong fiscal rules dampen political budget cycles
Similar results are reported by Alt and Rose (2007, p. 862), who conclude that the fiscal rule set “remains the biggest single contextual difference we find in the estimated magnitudes of political budget cycles” across states
Summary
The political budget cycle (PBC) literature focuses on election cycles in government spending, taxation and budget deficits. Veiga et al (2017) examined circumstances under which fiscal manipulation may occur, differentiating between several factors affecting the incentives of the incumbent to behave opportunistically, factors affecting the capacity of the opportunistic policies to yield additional votes, and characteristics of political institutions, such as proportional versus majoritarian electoral rules. They find that the degree of media freedom is the most important conditioning factor for PBCs. When media freedom is weak, the electoral effect on budget deficits is strong
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
