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Party alignment and political budget cycles: the Argentine provinces

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  • Daniel Lema
  • Jorge M. Streb

Abstract

The links between subnational political budget cycles (PBCs) and the national government in federal countries have seldom been studied. We study the behavior of the budget balance, public expenditures, and revenues in Argentine provinces during the 1985–2001 period. We find that in election years public expenditures increase, but revenues also do — a result exactly contrary to the predictions of rational opportunistic models of aggregate PBCs — and the budget deficit does not increase significantly. Since the increase in provincial revenues is due to larger federal transfers, we incorporate the influence of party alignment between governors and president. Public expenditures in election years increase in aligned provinces because of larger federal transfers, without affecting the budget deficit; in contrast, the budget deficit tends to increase in unaligned provinces. The federal government thus plays a key role in subnational PBCs, with an electoral cycle in the allocation of federal transfers.

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Bibliographic Info

Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 520.

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Length: 48 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:cem:doctra:520

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Keywords: political budget cycles; federal countries; discretional transfers; tactical allocation; party alignment; distributive politics;

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  1. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  2. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  3. 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.
  4. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  5. Medina, Leandro & Lema, Daniel, 2004. "Electoral Budget Cycles: The case of the Argentine Provinces," MPRA Paper 21504, University Library of Munich, Germany.
  6. Shanna Rose, 2006. "Do fiscal rules dampen the political business cycle?," Public Choice, Springer, vol. 128(3), pages 407-431, September.
  7. Valentino Larcinese & Leonzio Rizzo & Cecilia Testa, 2005. "Allocating the US Federal Budget to the States: the Impact of the President," STICERD - Political Economy and Public Policy Paper Series 03, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  8. Susanne Lohmann, 1998. "Rationalizing the Political Business Cycle: A Workhorse Model," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 1-17, 03.
  9. 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.
  10. 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.
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