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Temporal aggregation in political budget cycles

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  • Jorge M. Streb

    ()

  • Daniel Lema
  • Pablo Garofalo

Abstract

We build a panel with quarterly data from Latin American and OECD countries over the 1980-2005 period. Annual data strongly underestimate the effect of political budget cycles (PBCs) when a pre-electoral fiscal expansion is followed by a post-electoral contraction, since the effects cancel out in the calendar year of elections, but not in the four quarters up to elections. Quarterly data show there is a significant fiscal expansion in the four pre-electoral quarters that extends, perhaps, to the first post-electoral quarter. In the next three post-electoral quarters, there is a compensating fiscal contraction only in Latin America, so PBCs contributed to public debt build-up in the OECD. Our results contradict a widespread consensus on PBCs being only a developing country phenomena - a conclusion which might have been affected by temporal aggregation - and imply that studies of electoral cycles should be done from now on with quarterly, not annual, data.

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Bibliographic Info

Article provided by LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION in its journal JOURNAL OF LACEA ECONOMIA.

Volume (Year): (2012)
Issue (Month): ()
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Handle: RePEc:col:000425:010031

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Keywords: political budget cycles; pre- and post-electoral effects; temporal aggregation; checks and balances;

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  2. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  3. Jorge M. Streb & Daniel Lema & Gustavo Torrens, 2009. "Checks and Balances on Political Budget Cycles: Cross-Country Evidence," Kyklos, Wiley Blackwell, vol. 62(3), pages 426-447, 08.
  4. Jorge M. Streb & Gustavo F. Torrens, 2009. "Making rules credible: Divided government and political budget cycles," CEMA Working Papers: Serie Documentos de Trabajo. 395, Universidad del CEMA.
  5. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," Economics Working Papers 0047, Institute for Advanced Study, School of Social Science.
  6. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
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  8. Shi, Min & Svensson, Jakob, 2006. "Political budget cycles: Do they differ across countries and why?," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1367-1389, September.
  9. Brender, Adi & Drazen, Allan, 2005. "Political budget cycles in new versus established democracies," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1271-1295, October.
  10. Lorena Barberia & George Avelino, 2011. "Do political budget cycles differ in Latin American democracies?," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  11. Schuknecht, Ludger, 1996. "Political Business Cycles and Fiscal Policies in Developing Countries," Kyklos, Wiley Blackwell, vol. 49(2), pages 155-70.
  12. Fernandez, Roque B, 1981. "A Methodological Note on the Estimation of Time Series," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 471-76, August.
  13. Alt, James E. & Lassen, David Dreyer, 2006. "Fiscal transparency, political parties, and debt in OECD countries," European Economic Review, Elsevier, vol. 50(6), pages 1403-1439, August.
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Cited by:
  1. Daniel Lema & Jorge M. Streb, 2013. "Ciclos electorales en polĂ­tica fiscal," CEMA Working Papers: Serie Documentos de Trabajo. 514, Universidad del CEMA.
  2. Jorge M. Streb & Daniel Lema & Pablo Garofalo, 2013. "Electoral cycles in international reserves: Evidence from Latin America and the OECD," CEMA Working Papers: Serie Documentos de Trabajo. 526, Universidad del CEMA.

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