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Do political budget cycles really exist?

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Most recent cross-country studies on election-motivated fiscal policy assume that the data can be pooled. As various tests suggest that our data for some 70 democratic countries for the period 1970–2007 cannot be pooled, we use the Pooled Mean Group (PMG) estimator to test whether Political Budget Cycles (PBCs) exist in our sample. We find that fiscal policy is only affected by upcoming elections in the short run. Our results suggest that the occurrence of a PBC is conditional on the level of development and democracy, government transparency, the country's political system, its membership of a monetary union and its degree of political polarization.
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Keywords: E62; H62; elections; fiscal balance; government spending; heterogenous panel model; political budget cycles

Document Type: Research Article

Affiliations: 1: Social Science Group,Wageningen University, Hollandseweg 1Wageningen 6706 KN, The Netherlands 2: De Nederlandsche Bank,Research Department, PO Box 98, 1000 ABAmsterdam, The Netherlands

Publication date: 01 January 2013

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