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Fiscal Rules and the Opportunistic Behaviour of the Incumbent Politician: Evidence from Italian Municipalities

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  • David Bartolini
  • Raffaella Santolini

Abstract

Previous studies on electoral competition show that fiscal variables are manipulated by incumbent politicians in order to be re-elected. This phenomenon has been addressed by the literature on electoral budget cycle and, in a decentralised economy, by the literature on yardstick competition. Our objective is to consider the effect of the introduction of a fiscal rule on the opportunistic behaviour of incumbent politicians. We conduct a panel data analysis on the current expenditures of 246 Italian municipalities. The introduction of the domestic stability pact (DSP) seems to change the electoral cycle, by increasing the magnitude of the expenditures during pre-electoral periods. Moreover, our results show that municipalities affected by the DSP are more sensitive to changes in neighbouring jurisdictions’ fiscal policies, during pre-electoral periods. We conclude that the introduction of the DSP, besides significantly reducing the level of local public spending, strengthens the opportunistic behaviour of incumbent politicians in pre-electoral years.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2605.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2605

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Keywords: fiscal rules; electoral budget cycle; yardstick competition; system GMM; spatial econometrics;

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References

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Cited by:
  1. W. D. Gregori, 2014. "Fiscal Rules and Public Spending: Evidence from Italian Municipalities," Working Papers wp923, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Marika Cioffi & Giovanna Messina & Pietro Tommasino, 2012. "Parties, institutions and political budget cycles at the municipal level," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 885, Bank of Italy, Economic Research and International Relations Area.

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