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Separation of Powers and Political Budget Cycles

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Author Info
Jorge M. Streb
Alejandro Saporiti

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Abstract

From a theoretical viewpoint, political budget cycles (PBC) arise in equilibrium when rational voters are imperfectly informed about the incumbent’s competency and the incumbent enjoys discretionary power over the budget. This paper focuses on the second condition, examining how executive discretion is affected by the budgetary process under separation of powers. We specifically model PBC in the composition of government spending. The main result is that effective checks and balances in the budgetary process curb PBC. The institutional features of the executive-legislature bargaining game, namely, the actual agenda-setting authority, the status quo location and the degree of legislative oversight and control of the implementation of the budgetary law, play critical roles for the existence and the size of PBC. These results are consistent with recent empirical findings, which show that PBC are more pronounced in developing countries, where there are also less effective checks and balances.

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Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 251.

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Date of creation: Nov 2003
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Handle: RePEc:cem:doctra:251

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Related research
Keywords: Rational political budget cycles; budget composition; separation of powers; checks and balances; budgetary process.;

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation

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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.:
  1. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1997. "Separation of Powers and Political Accountability," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
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  3. Susanne Lohmann, 1998. "Rationalizing the Political Business Cycle: A Workhorse Model," Economics and Politics, Blackwell Publishing, vol. 10(1), pages 1-17, 03. [Downloadable!] (restricted)
  4. Shi, Min & Svensson, Jakob, 2002. "Conditional Political Budget Cycles," CEPR Discussion Papers 3352, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Blackwell Publishing, vol. 55(1), pages 1-16, January. [Downloadable!] (restricted)
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  7. Alesina, Alberto & Hausmann, Ricardo & Hommes, Rudolf & Stein, Ernesto, 1999. "Budget institutions and fiscal performance in Latin America," Journal of Development Economics, Elsevier, vol. 59(2), pages 253-273, August. [Downloadable!] (restricted)
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  8. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Jorge Miguel Streb, 2005. "Signaling in Political Budget Cycles: How Far Are You Willing to Go?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 229-252, 05. [Downloadable!] (restricted)
  10. Min Shi & Jakob Svensson, 2003. "Political Budget Cycles: A Review of Recent Developments," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 29, pages 67-76. [Downloadable!]
  11. Lohmann, Susanne, 1998. "Institutional Checks and Balances and the Political Control of the Money Supply," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 360-77, July.
  12. McNollgast, 2007. "The Political Economy of Law," Handbook of Law and Economics, Elsevier. [Downloadable!] (restricted)
  13. Torsten Persson & Guido Tabellini, 2003. "Do Electoral Cycles Differ Across Political Systems?," Working Papers 232, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  14. Schuknecht, Ludger, 2000. " Fiscal Policy Cycles and Public Expenditure in Developing Countries," Public Choice, Springer, vol. 102(1-2), pages 115-30, January. [Downloadable!] (restricted)
  15. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. 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. [Downloadable!] (restricted)
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  17. Torsten Persson & Guido Tabellini, 2005. "The Economic Effects of Constitutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661926.
  18. Brender, Adi & Drazen, Allan, 2003. "Where Does the Political Budget Cycle Really Come From?," CEPR Discussion Papers 4049, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
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  1. James E. Alt & David Dreyer Lassen, 2005. "The Political Budget Cycle is Where You Can't See It: Transparency and Fiscal Manipulation," EPRU Working Paper Series 05-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
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