Expenditure visibility and voter memory: a compositional approach to the political budget cycle in Indian states, 1959–2012

Abstract

In this paper we argue that the political budget cycle test for opportunistic spending is weakened by the absence of a strong reason for why spending increases should be restricted to the time period leading into the next election. One would expect that a targeted benefit should elicit the same degree of voter support whenever it is received. Here we argue that while the political need to fulfill a list of pre-election promises serves to constrain excessive spending, the characteristic that some expenditure items better demonstrate the contributions of the current government to voters (with depreciating memories) leads to a predictable reallocation of the composition of budgetary spending across the life of a government. Our test for a predictable timing pattern to subcomponents of the budget uses capital expenditures as the budgetary item with greater visibility spillovers and a data set of 14 Indian states over 54 years (1959/60–2012/13). The predictions that capital expenditures relative to both total government expenditure and government consumption should rise across the governing interval are found to be consistent with the data and provide a better fit with the data than more traditional political budget cycle models that use aggregate spending/deficits in the pre-election period.