The effect of political budget cycle on local governments’ financial statements in a young democracy

Abstract

IMPACT This article investigates whether the political budget cycle exists among local governments in Indonesia by examining if there are significant decreases in surplus and cash holdings and increases in current liabilities around election years. Investigating the political budget cycle in Indonesia is important because it is a young democracy where the political budget cycle is usually more prevalent. As local governments’ financial reports are publicly available, concerned citizens can use the financial reports to detect the presence of political budget cycles and to assess their magnitude. This increases budget transparency which, in turn, increases accountability to voters—particularly at the local level.