Political Budget Cycles in Local Governments

Abstract

This paper aims to analyse the impact of the electoral schedule on municipal governments’ financial activities. Specifically, we pay attention to capital spending, current spending and taxes. We use a long time series (1989-2008) of the 45 municipalities of the Region of Murcia (Spain). Our results show the existence of Political Budget Cycles on capital spending and taxes. We find an increase of capital spending in the electoral and pre-electoral years, when the impact is higher on voters. Taxes are reduced in the election year. We also prove that the mayor’s political orientation and political strength impact Political Budget Cycles. The mayor’s decision of running for re-election does not affect the magnitude of the cycle.