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Using real-time data to test for political budget cycles

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  • Sturm, Jan-Egbert
  • Haan, Jakob de
  • Jong-A-Pin, Richard

    (Groningen University)

Abstract

We use real-time annual data on the fiscal balance, government current spending, current revenues and net capital outlays as published at a half yearly frequency in the OECD Economic Outlook for 25 OECD countries. For each fiscal year t we have a number of forecasts, a first release, and subsequent revisions. It turns out that revisions in the fiscal balance data are not affected by elections. However, we do find that governments spend more than reported before an election which provides support for moralhazard type of political budget cycle (PBC) models: through hidden efforts the incumbent tries to enhance his perceived competence. We also find that governments had higher current receipts than reported before an election, which is in line with adverse-selection type of PBC models in which incumbents signal competence through expansionary fiscal policy before the elections.

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Bibliographic Info

Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 12010-EEF.

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Date of creation: 2012
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Handle: RePEc:dgr:rugsom:12010-eef

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  1. Francisco de Castro & Javier J. Pérez & Marta Rodríguez Vives, 2011. "Fiscal data revisions in Europe," Banco de Espa�a Working Papers 1106, Banco de Espa�a.
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Cited by:
  1. Merola, Rossana & Pérez, Javier J., 2013. "Fiscal forecast errors: Governments versus independent agencies?," European Journal of Political Economy, Elsevier, vol. 32(C), pages 285-299.

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