Advanced Search
MyIDEAS: Login

Do fiscal rules dampen the political business cycle?

Contents:

Author Info

  • Shanna Rose

    ()

Registered author(s):

    Abstract

    This paper develops and tests the theory that fiscal rules limit politicians' ability to manipulate the budget for electoral gain. Using panel data from the American states, I find evidence suggesting that stringent balanced budget rules dampen the political business cycle. That is, while spending rises before and falls after elections in states that can carry deficits into the next fiscal year, this pattern does not exist in states with strict “no-carry” rules. Neither binding gubernatorial term limits nor the partisan composition of government appear to significantly affect the magnitude of the political business cycle. Copyright Springer Science+Business Media, Inc. 2006

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://hdl.handle.net/10.1007/s11127-005-9007-7
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Springer in its journal Public Choice.

    Volume (Year): 128 (2006)
    Issue (Month): 3 (September)
    Pages: 407-431

    as in new window
    Handle: RePEc:kap:pubcho:v:128:y:2006:i:3:p:407-431

    Contact details of provider:
    Web page: http://www.springerlink.com/link.asp?id=100332

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Tamim Bayoumi & Barry Eichengreen, 1995. "Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 32-48, March.
    2. Block, Steven A., 2002. "Political business cycles, democratization, and economic reform: the case of Africa," Journal of Development Economics, Elsevier, vol. 67(1), pages 205-228, February.
    3. 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.
    4. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
    5. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
    6. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    7. Adi Brender & Allan Drazen, 2004. "Political Budget Cycles in New versus Established Democracies," NBER Working Papers 10539, National Bureau of Economic Research, Inc.
    8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
    9. Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1992. "Macroeconomic Policy And Elections In Oecd Democracies," Economics and Politics, Wiley Blackwell, vol. 4(1), pages 1-30, 03.
    10. von Hagen, Jurgen, 1991. "A note on the empirical effectiveness of formal fiscal restraints," Journal of Public Economics, Elsevier, vol. 44(2), pages 199-210, March.
    11. Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1991. "Macroeconomic Policy and Elections in OECD Democracies," NBER Working Papers 3830, National Bureau of Economic Research, Inc.
    12. Besley, Timothy J. & Case, Anne, 2002. "Political Institutions and Policy Choices: Evidence from the United States," CEPR Discussion Papers 3498, C.E.P.R. Discussion Papers.
    13. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
    14. James M. Poterba, 1995. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc.
    15. Cohen, Gerald & Alesina, Alberto & Roubini, Nouriel, 1992. "Macroeconomic Policy and Elections in OECD Democracies," Scholarly Articles 4553023, Harvard University Department of Economics.
    16. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A Better Balanced Budget Amendment
      by Matt Mitchell in Neighborhood Effects on 2011-08-05 21:27:41
    2. Balanced Budget Rules and Unintended Consequences
      by Matt Mitchell in Neighborhood Effects on 2011-07-21 14:22:27
    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Marina, Azzimonti & Marco, Battaglini & Stephen, Coate, 2010. "On the Case for a Balanced Budget Amendment to the U.S. Constitution," MPRA Paper 25935, University Library of Munich, Germany.
    2. Yilin Hou & Daniel Smith, 2010. "Do state balanced budget requirements matter? Testing two explanatory frameworks," Public Choice, Springer, vol. 145(1), pages 57-79, October.
    3. George A. Krause & David E. Lewis & James W. Douglas, 2013. "Politics Can Limit Policy Opportunism in Fiscal Institutions: Evidence from Official General Fund Revenue Forecasts in the American States," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(2), pages 271-295, 03.
    4. Christian Bjørnskov & Niklas Potrafke, 2013. "The size and scope of government in the US states:Does party ideology matter?," Ifo Working Paper Series Ifo Working Paper No. 162, Ifo Institute for Economic Research at the University of Munich.
    5. Toke Aidt & Graham Mooney, 2014. "Voting Suffrage and the Political Budget Cycle: Evidence from the London Metropolitan Boroughs 1902-1937," CESifo Working Paper Series 4614, CESifo Group Munich.
    6. Daniel Lema & Jorge M. Streb, 2013. "Party alignment and political budget cycles: the Argentine provinces," CEMA Working Papers: Serie Documentos de Trabajo. 520, Universidad del CEMA.
    7. Andersen, Asger Lau & Lassen, David Dreyer & Nielsen, Lasse Holbøll Westh, 2014. "The impact of late budgets on state government borrowing costs," Journal of Public Economics, Elsevier, vol. 109(C), pages 27-35.
    8. Troeger, Vera, 2012. "De Facto Capital Mobility, Equality, and Tax Policy in Open Economies," CAGE Online Working Paper Series 84, Competitive Advantage in the Global Economy (CAGE).
    9. Jakob Haan & Jeroen Klomp, 2013. "Conditional political budget cycles: a review of recent evidence," Public Choice, Springer, vol. 157(3), pages 387-410, December.
    10. Marek Hanusch, 2012. "Coalition incentives for political budget cycles," Public Choice, Springer, vol. 151(1), pages 121-136, April.
    11. Bernardino Benito & Francisco Bastida & Cristina Vicente, 2013. "Municipal elections and cultural expenditure," Journal of Cultural Economics, Springer, vol. 37(1), pages 3-32, February.
    12. Toke Aidt & Graham Mooney, 2014. "Voter suffrage and the political budget cycle: evidence from the London Metropolitan Boroughs 1902-1937," Cambridge Working Papers in Economics 1401, Faculty of Economics, University of Cambridge.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:128:y:2006:i:3:p:407-431. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.