Party alternation and fiscal performance—evidence from Taiwan’s local government

Abstract

This study aims to explore whether party alternation in local mayoral elections might have any influence on the local fiscal deficit in each of the four years after such elections take place in Taiwan. The results of five local mayoral elections for the 21 counties/cities in 1989, 1993, 1997, 2001 and 2005, respectively, as well as three indicators of the fiscal deficit for the 21 counties and cities from 1990 to 2009 are employed to estimate the spatial econometric model. The primary finding of this study is that after using instrument variable to conquer the endogeneity problem, party alternation making counties to have new mayors of new ruling parties cannot mitigate the fiscal deficit in any years after the election, instead will tend to aggravate the local fiscal deficit in the third and fourth years after the election that is consistent with the theory of political budget cycle.