The Local Political Business Cycle

Abstract

Although local political leaders have fewer policy instruments available than national politicians, they nevertheless engage heavily in the creation of political business cycles, i.e. they try to locate and time the costs and benefits of government policies in such as way as to optimize voter support. The study, which is based on data from the four Nordic countries and Italy and France, shows that expenditures tend to grow faster the closer the local election, while political action to increase local taxes is generally taken only in mid‐term years. If one wants to predict how local tax rates and expenditures change, it is as important to know the number of years' to the next election as it is to know the change in the fiscal capabilities of local governments.