Term Limits and Political Budget Cycles: First Term or Last Term Effect?

Abstract

The aim of this paper is to challenge the traditional view on the political last-term eff ect. I show that elections can have an additional e ffect on the behavior of good (public spirited) politicians. Indeed, elections can induce good politicians to signal themselves by manipulating fiscal or policy variables. In this context, term-limits imposed on previously selected politicians can have the effect of avoiding the need of costly (in terms of welfare) signaling for good politicians.