Political Budget Cycles Research Articles

Electoral Cycles in Fiscal Rules: International Empirical Evidence

Abstract Using panel data from 99 countries over the period of 1985–2020, this study aims to uncover that fiscal rules work in electoral cycles. The results show that fiscal rules are less likely to be implemented in the pre-election year. We also find that this loosening in fiscal rules is especially prominent in cases when the incumbent political party can wield significant political power, where countries are less developed economically and politically, and where the management of fiscal rules is more likely to be exposed to discretionary interventions. Our findings are aligned with the opportunistic political budget cycles, in which politicians exploit fiscal policies and systems to serve their own political incentives. These results suggest that even fiscal rules, which are designed to prevent political pressure, are also subject to political process. (JEL codes: D72, D78, E32, E62, H11, and H60).

Do Fiscal Rules Tame the Political Taxation Cycles under Authoritarian Regimes: Evidence from China’s New Budget Law

Political budget cycles (PBCs) in Western democracies have been extensively examined. Yet, few studies have explored whether there exists a local political budget cycle under authoritarian regimes. Moreover, the question of whether fiscal rules effectively tame the political taxation cycles remains. Unlike previous studies, we bring the “business” back into the study of political “business” cycles. Using firm tax payments data in China, we confirm the presence of political cycles in local tax collection behaviors under the authoritarian system. However, in contrast to the fiscal manipulation behaviors during and before political elections in Western democracies, Chinese local leaders engage in opportunistic taxation behaviors in the early years after the Provincial Congress of the Communist Party (PCCP) when there are local leaders’ elections. The political taxation cycles disappeared following the implementation of China’s new budget law in 2015, demonstrating the effectiveness of fiscal rules in taming local political budget cycles in authoritarian regimes. This research extends the existing PBC theory to the context of non-Western democracies based on micro-level evidence.

The influence of politicians' sex on political budget cycles: An empirical analysis of Spanish municipalities

AbstractDoes a politician's sex influence political budget cycles (PBCs)? We answer this question using a sample of Spanish municipalities from the Madrid region for the period 2010–2019. The Madrid region has a homogenous set of budget rules that allow consistent categorization of budget expenditure items as either “mandatory” or “non‐mandatory” public services. After differentiating between smaller and larger municipalities, gender influence is studied along two dimensions: the mayor's sex and the share of women in government. Our findings include, in regard to mandatory spending in smaller municipalities, that gender‐balanced governments induce PBCs. In larger municipalities, when the share of women in government is above 60%, electoral spending is increased by up to 10% of an average municipal budget for mandatory spending, and up to 2.2% for non‐mandatory. These findings are generally supported in a mixed‐gender close election analysis.

Pork barrel spending: The missing link between electoral clientelism and political budget cycles

Pork barrel spending used in the political budget cycles literature via a preference approach is identified as the link tying clientelism to political budget cycles. This paper looks at the supply and demand sides of electoral clientelism using the case study of shipyards in Croatia. The strategic, symbolic and everyday importance of the shipbuilding industry in Croatia is evident to the general public, but even more so to politicians. This paper examines the supply side – whether incumbents increase central budget funds (state guarantees) in election years (pork barrel spending) toward shipyards in Pula, Rijeka, Kraljevica, Trogir and Split – and the demand side – whether voters reward incumbents who engage in these pork barrelling practices. The theoretical foundations of the paper are based on the literature on clientelism, political budget cycles and the political economy of fiscal policy. Panel data analysis conducted on a sample of 5 shipyards over the 2001-2022 period confirms the existence of pork barrelling but does not confirm voters’ reactions to them. The empirical exercise identified the share of shipyard workers in the manufacturing industry at the county level as the main mechanism of electoral clientelism in Croatia.

The political budget cycle in local government finance: a balance sheet approach on the example of cities with poviat rights

The aim of this paper is to carry out an empirical verification of the occurrence of the political cycle in cities with poviat rights in Poland. Current challenges of local financial management, previous results of national and international research, and threats associated with various types of risks, including political risks, are the motivation for addressing this topic in the paper. The research was conducted using panel data analysis, and its results indicate the existence of a political budget cycle, the effects of which are reflected in the asset and financial situation of cities. The study used balance sheet data, which significantly distinguishes it from previous studies, both domestic and foreign. The results allow us to conclude that balance sheet information should find wider application in monitoring the security and stability of local government finances in Poland.

Wage bargaining structure and political budget cycles: A policy game approach

Utilizing a panel dataset from OECD countries, this study unveils new evidence suggesting that the centralization of wage bargaining plays a significant role in mitigating Political Budget Cycles. To explain this empirical finding, the paper introduces a political economy model based on a policy game framework, encompassing three key agents: (i) an opportunistic government that decides on the level of budget deficits with the objective of enhancing its reelection prospects, (ii) workers/voters who decide on their sectoral affiliations, and (iii) unions that independently negotiate wages with firms. In this model, the opportunistic government has an incentive to run a budget deficit to favor the median voter, who is affiliated with non-tradable sectors. The mechanism emerges from the impact of debt-financed public spending on relative prices, and consequently, on relative wages between non-tradable and tradable sectors. Wage centralization mitigates the political incentive of opportunistic governments by attenuating the responsiveness of sectoral wages to sectoral prices, thereby pushing down budget deficits towards a socially more optimal level.

Can fiscal transparency mitigate political budget cycles?

Can fiscal transparency mitigate political budget cycles?

The Political Budget Cycle: Evidence from Indian Municipal Corporation Elections

The political budget cycle (PBC) theory deals with increased spending or decreased revenue collection, or a combination of both, on the verge of an election by the incumbent government to retain office. Empirical verification of the PBC theory at the subnational local government level is scarce in the literature. Subnational local governments are more prominent in population and budget for a country like India. This study takes into account 34 municipal corporations in India to examine the PBC theory and find strong evidence of politically motivated cycles on the budget expenditure and revenue front. Notably, the more visible expenditure on welfare schemes shows increased spending during an election period. On the revenue side, this study also finds evidence in support of the PBC theory. Indian municipal corporations are creating ‘welfare’ and ‘infrastructure’ cycles during the election period to gain political profit and are validating the ‘visibility’ and ‘targetability’ hypotheses described in the literature. This study is the first attempt to trace the presence of the PBC at the subnational local government level in India.

Political determinants of COVID-19 restrictions and vaccine rollouts: The case of regional elections in Italy and Spain

The COVID-19 pandemic is one of the most significant public health crises in modern history, with considerable impacts on the policy frameworks of national governments. In response to the pandemic, non-pharmaceutical interventions (NPIs) and mass vaccination campaigns have been employed to protect vulnerable groups. Through the lens of Political Budget Cycle (PBC) theory, this study explores the interplay between incumbent electoral concerns and political dynamics in influencing the implementation of NPIs and vaccination rollout within the administrative regions of Italy and Spain during the period spanning June 2020 to July 2021. The results reveal that incumbents up for the next scheduled election are 5.8 % more likely to increase the stringency of containment measures than those that face a term limit. The findings also demonstrate that the seats of the incumbent and coalition parties in parliament and the number of parties in the coalition have a negative effect on both the efficiency of the vaccination rollout and the stringency of NPIs. Additionally, the competitiveness of the election emerges as an important predictor of the strictness of NPIs. Therefore, our results suggest that incumbents may strategically manipulate COVID-19 policy measures to optimize electoral outcomes. The study underscores the substantive influence of political incentives, competitive electoral environments, and government coalitions on policy formulation during health emergencies.

Playing politics with traffic fines: Sheriff elections and political cycles in traffic fines revenue

AbstractThe political budget cycle theory has extensively documented how politicians manipulate policies during election years to gain an electoral advantage. This paper focuses on county sheriffs, crucial but often neglected local officials, and investigates their opportunistic political behavior during elections. Using a panel data set covering 57 California county governments over four election cycles, we find compelling evidence of traffic enforcement policy manipulation by county sheriffs during election years. Specifically, a county's per capita traffic fines revenue is 30% lower in the election than in nonelection years. The magnitude of the political cycle intensifies when an incumbent sheriff runs for reelection or an election is competitive. Our findings contribute to the political budget cycle theory and provide timely insights into the ongoing debate surrounding law enforcement reform and local governments’ increasing reliance on fines and fees revenue.

How does the stringency of state tax and expenditure limitations influence opportunistic taxation?

ABSTRACT Elected politicians often adopt fiscal policies to secure (re-)election, sometimes diverging from voter interests by altering revenue streams. Recent research indicates that contextual factors may curb such opportunistic taxation yet the impact of state-level tax and expenditure limitations (TELs) on this behavior remains debatable. We contend that TELs may prevent revenue manipulation linked to electioneering. Analyzing panel data from 45 U.S. states from 1980 to 2013, we observed electoral influences on taxes (sales, excise, and income) and non-tax revenues (charges and fees) where TELs are absent, and a suppression of these influences under stringent TELs. Contrary to previous findings, our results demonstrate TELs’ effectiveness in reducing political manipulation of fiscal measures, suggesting significant implications for understanding the interplay between fiscal institutions and political budget cycle.

Political Budget Cycles and Mayoral Influence in Latvian Municipalities: An Examination of Revenue, Expenditure, and Electoral Dynamics

Budget allocation and budget planning can be used in different ways. In addition, it can be part of a political budget cycle. Previous research has highlighted the political budget cycle's existence in European countries, demonstrating its impact on public revenue and expenditure near elections. However, citizens often lack awareness of this phenomenon, underscoring the need for vigilant scrutiny. In addition, elected politicians increasingly rely on voters for support, targeting them during budget allocation and election campaigns. In Latvia, the mayors have a role in budget planning because they work full-time and are the head of the financial commission. In Latvia, despite a lack of trust in local politicians, there is a tendency for most of the mayors to be re-elected. The article aims to examine what kind of role the council’s chairperson has in the local government's budget allocation process and what factors affect the budget allocation process in Latvia. The article’s scope encompasses the years 2009 to 2017, spanning two election terms (2009-2013; 2013-2017), and focuses on eight state cities in Latvia, excluding the capital city, Riga. Notably, local governments with a higher percentage of council members from the mayor's party tend to exhibit higher expenditure levels. The findings of this study suggest that various socio-economic and political factors impact the financial performance of local governments in Latvia. These results underscore the significance of population and unemployment in shaping local government expenditures. Simultaneously, this research has highlighted the importance of political factors such as the majority in the local government and time spent in the mayor’s position. Moreover, it reveals that long-serving mayors and a majority in the council also influence budget allocation decisions. This article's implications can guide policymakers in making informed decisions regarding municipal budget expenditures and revenues.

The effects of resource rents and elections on human capital investment in Colombia

Previous studies have shown that politicians tend to behave opportunistically by promoting expansionary fiscal policies before elections in order to advance their political careers. While there is ample evidence of political budget cycles (PBCs) on the national-level, subnational-level analysis remains limited. To address this gap, this article examines whether resource rents fuel PBCs in Colombia at the subnational level. In particular, it analyzes whether a fiscal reform that redistributes royalty revenue between subnational governments, propagates the windfall effect to other states or limits the negative development impacts of resource rents and PBCs. Using municipal-level data and system generalized method of moments estimation to account for potential endogeneity, we found that municipalities invested in health and education according to the size of the resource rents they received. We also found that the fiscal policy reform in Colombia leads municipalities’ decisions about investment in human capital less reliant on resource revenue, especially for producer municipalities.

Political budget cycle and the alignment effect: Evidence from South Korea

This study examines the effect of political alignment on the political budget cycle in multi-level local governments (municipal and regional governments). The central government may increase transfers to politically unaligned municipalities before local elections if (1) these municipalities are part of politically aligned regions and (2) the alignment of regional incumbents determines the political fate of the president. To formalize this hypothesis, we present a simple political agency model of multi-level governments. Using data from 226 Korean municipalities within 16 regions, and a regression discontinuity design, we find that, during local election years, the central government increases discretionary subsidies to municipalities that are part of aligned regions. In particular, subsidies increase significantly before local elections in unaligned municipalities if they are located in aligned regions. Finally, an increase in subsidies increases the regional vote share obtained by the ruling party.

The Impact of Local Governments’ Budget Transparency on Debt in Croatia

Abstract We investigate the impact of the budget transparency of local governments on debt using a panel data analysis of all 556 Croatian cities and municipalities over the 2014-2021 period. The analysis shows that increased budget transparency is associated with lower local government debt, i.e., budget transparency enables better public control of unnecessary debt. Additionally, regarding the legal regulation according to which higher own revenues enable higher borrowing, we examine the link between budget transparency and own revenues. The results show that local governments with higher budget transparency have higher own revenues, i.e., budget transparency can help local governments better control opportunistic borrowing and simultaneously increase their own revenues. Finally, we detect political budget cycles related to local government revenues and debt. This paper constitutes the first attempt to explore the effect of budget transparency on debt and own revenues in all local governments in one young democracy.

Political Incentives, Bureaucratic Behaviors and Political Budget Cycles in China

Political Incentives, Bureaucratic Behaviors and Political Budget Cycles in China

Political Budget Cycles. Evidence from Romania

Political Budget Cycles. Evidence from Romania

Political budget cycle and unfunded pension liabilities in states in the USA

IMPACT Evidence shows that gubernatorial elections affect pension funding in US states. Contrary to expectations, this article shows that pension plans in election and post-election years tend to be better funded. Other political factors, such as partisanship and unionization, also play a role in funding state employees’ pension plans—the higher the level of unionization, the lower the pension funding. Institutional factors, including tax and expenditure limits (TELs), ‘rainy day funds’ (RDFs), and balanced budget requirements (BBRs), also affect pension funding. TELs positively affect pension funding, while the level of RDFs and the stringency of BBRs tend to reduce pension funding. These findings caution state fiscal administrators and state-level policy-makers as they indicate that political factors along with fiscal institutions are important to consider for their long-term impacts on the viability of pension plans. This article informs policy-makers in the USA and in other countries to exercise more caution during election years as electoral politics may affect pension funding. Political factors are critical in making fiscal decisions, and while this study focuses on the USA states, the lessons are equally important for pension administrators and policy-makers in other countries.

An Investigation About Political Budget Cycle in the Electoral Period in American Countries

An Investigation About Political Budget Cycle in the Electoral Period in American Countries

The political budget cycles in emerging and developing countries

PurposeThis paper examines the political budget cycles in emerging and developing countries using a sample of 91 countries from 1992 to 2019.Design/methodology/approachThis paper employs a pooled ordinary least squares (OLS) model with clustered standard errors at the country level. To address endogeneity issues, the authors also employ a two-step system generalized methods of moments model.FindingsThe authors find clear evidence of political budget cycles in emerging and developing countries. The authors consistently find that incumbents increase total government spending, particularly in economic affairs, public services and social welfare, in the year before an election and the election year. In contrast, they contract spending in the year after an election.Research limitations/implicationsPolicymakers should be aware of the political budget cycles during election years. Promoting control of corruption and democracy helps to alleviate the effects of the political budget cycles in emerging and developing countries.Originality/valueThe authors are among the first to explore the political budget cycles in emerging and developing countries by focusing on the total government spending and its main compositions, including expenditures on economic affairs, public services and social welfare. Besides, the authors also explore the conditioning effects of control of corruption, political ideology and democracy.