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Political Business Cycle in the Czech Republic: Case of Municipalities

Author

Listed:
  • Michal Plaček
  • Milan Půček
  • František Ochrana
  • Milan Křápek
  • Lenka Matějová

Abstract

The study analyses expenditures of all municipalities of the Czech Republic over the period 2003-2013. It aims to examine whether changes in municipal spending get affected by the electoral cycle. The analysis has proven that expenditures of municipalities of the Czech Republic are influenced by the political cycle. However, the political business cycle has at the level of municipalities (compared to the macroeconomic level) its peculiarities. These arise mainly from limited options of municipal politicians to use economic instruments to win electoral votes in elections. To receive electoral votes, municipal politicians use mainly public investments and projects that are at the level of municipalities so apparent that they may influence voters in their electoral decision-making. Prior to elections, expenditures on investments significantly increase for all municipal size groups. For municipal size groups of over 50,000 residents, however, they are (per capita) higher compared to smaller municipal size groups. This may be explained by the fact that these municipalities have higher disposable resources (higher per capita own budgetary revenues, higher potential to acquire resources to co-finance municipal projects and broader portfolio of debt financing). Expenditures on transfers do not significantly change prior to municipal elections. We interpret this finding in a way that politicians prefer such investment projects that are ""visible"". Transfers are used to pay for certain current expenses for which municipalities may (in accordance with the established rules) apply through grants.

Suggested Citation

  • Michal Plaček & Milan Půček & František Ochrana & Milan Křápek & Lenka Matějová, 2016. "Political Business Cycle in the Czech Republic: Case of Municipalities," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(3), pages 304-320.
    • Handle: RePEc:prg:jnlpep:v:2016:y:2016:i:3:id:566:p:304-320
    DOI: 10.18267/j.pep.566
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    References listed on IDEAS

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    1. Lucie Sedmihradská & Rudolf Kubík & Jakub Haas, 2011. "Political Business Cycle in Czech Municipalities," Prague Economic Papers, Prague University of Economics and Business, vol. 2011(1), pages 59-70.
    2. Rosenberg, Jacob, 1992. "Rationality and the Political Business Cycle: The Case of Local Government," Public Choice, Springer, vol. 73(1), pages 71-81, January.
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    5. Josef Brechler & Adam Geršl, 2014. "Political legislation cycle in the Czech Republic," Constitutional Political Economy, Springer, vol. 25(2), pages 137-153, June.
    6. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    7. Alberto Alesina & Nouriel Roubini, 1992. "Political Cycles in OECD Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(4), pages 663-688.
    8. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 651-678.
    9. William D. Nordhaus, 1975. "The Political Business Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(2), pages 169-190.
    10. 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.
    11. Linda Veiga & Francisco Veiga, 2007. "Political business cycles at the municipal level," Public Choice, Springer, vol. 131(1), pages 45-64, April.
    12. Lindbeck, Assar, 1976. "Stabilization Policy in Open Economies with Endogenous Politicians," American Economic Review, American Economic Association, vol. 66(2), pages 1-19, May.
    13. Anthony Downs, 1998. "Political Theory and Public Choice," Books, Edward Elgar Publishing, number 1411.
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    Cited by:

    1. Ochrana František & Plaček Michal & Půček Milan Jan, 2016. "Shortfall of Strategic Governance and Strategic Management in the Czech Republic," Central European Journal of Public Policy, Sciendo, vol. 10(2), pages 30-47, December.
    2. Špaček David & Gatarik Eva, 2017. "Knowledge Management and Czech Self-Governments: Empirical Investigations into the Application of Knowledge Management to Public Administration in the Czech Republic," NISPAcee Journal of Public Administration and Policy, Sciendo, vol. 10(1), pages 201-220, June.

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    More about this item

    Keywords

    transfers; political business cycle at the level of municipalities in the Czech Republic; political business cycle; investment expenditures;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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