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Making rules credible: divided government and political budget cycles

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  • Jorge Streb

    ()

  • Gustavo Torrens

    ()

Abstract

Political budget cycles (PBCs) can result from the credibility problems office-motivated incumbents face under asymmetric information, due to the temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit public debt, because borrowing is a necessary condition for aggregate PBCs. Since the legislature must typically authorize new debt, divided government can make these fiscal rules credible. Commitment is undermined by either unified government or imperfect compliance with the budget law, which can help explain why PBCs are stronger in developing countries and in new democracies. When divided government affects efficiency, voters must trade off electoral distortions and government competence. Copyright Springer Science+Business Media, LLC 2013

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File URL: http://hdl.handle.net/10.1007/s11127-012-9923-2
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 156 (2013)
Issue (Month): 3 (September)
Pages: 703-722

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Handle: RePEc:kap:pubcho:v:156:y:2013:i:3:p:703-722

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Political budget cycles; Unified government; Rules; Credibility; Divided government; D72; D78; H60;

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Citations

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Cited by:
  1. Jorge M. Streb & Daniel Lema, 2009. "Temporal aggregation in political budget cycles," CEMA Working Papers: Serie Documentos de Trabajo. 403, Universidad del CEMA.
  2. Jakob Haan & Jeroen Klomp, 2013. "Conditional political budget cycles: a review of recent evidence," Public Choice, Springer, vol. 157(3), pages 387-410, December.
  3. Jorge M. Streb & Gustavo Torrens, 2011. "La economía política de la política fiscal," CEMA Working Papers: Serie Documentos de Trabajo. 455, Universidad del CEMA.
  4. Daniel Lema & Jorge M. Streb, 2013. "Ciclos electorales en política fiscal," CEMA Working Papers: Serie Documentos de Trabajo. 514, Universidad del CEMA.

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