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The Political Budget Cycle is Where You Can't See It: Transparency and Fiscal Manipulation

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  • James E. Alt

    (Department of Government, Harvard University)

  • David Dreyer Lassen

    (Institute of Economics, University of Copenhagen)

Abstract

We investigate the effects of fiscal transparency and political polarization on the prevalence of electoral cycles in fiscal balance. The recent political economy literature on electoral cycles identifies such cycles mainly in weak and recent democracies. In contrast, we show, conditioning on a new index of institutional fiscal transparency, that electoral cycles in fiscal balance are a feature also of advanced industrialized economies. Using a sample of nineteen OECD countries in the 1990’s, we identify a persistent pattern of electoral cycles in low(er) transparency countries, while no such cycles can be observed in high(er) transparency countries. Furthermore, we find, in accordance with recent theory, that electoral cycles are larger in more politically polarized countries.

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Bibliographic Info

Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 05-03.

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Length: 28 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:kud:epruwp:05-03

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Keywords: fiscal transparency; political polarization; fiscal policy; budget deficits; political budget cycles; electoral policy cycles;

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References

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  1. 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.
  2. Alejandro Saporiti & Jorge Streb, 2008. "Separation of powers and political budget cycles," Public Choice, Springer, vol. 137(1), pages 329-345, October.
  3. Susanne Lohmann, 1998. "Rationalizing the Political Business Cycle: A Workhorse Model," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 1-17, 03.
  4. Jorge Streb & Daniel Lema & Gustavo Torrens, 2005. "Discretional political budget cycles and separation of powers," CEMA Working Papers: Serie Documentos de Trabajo. 286, Universidad del CEMA.
  5. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, December.
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Cited by:
  1. Mark Mink & Jakob de Haan, 2005. "Has the Stability and Growth Pact Impeded Political Budget Cycles in the European Union?," CESifo Working Paper Series 1532, CESifo Group Munich.
  2. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers ECO2007/37, European University Institute.
  3. José Antonio Peña Ramos & César Vargas Díaz & Iván Medina Iborra, 2012. "Difusión y comparabilidad de la información económico -financiera on -line : el caso de Iberoamérica," REVISTA FACULTAD DE CIENCIAS ECONÓMICAS, UNIVERSIDAD MILITAR NUEVA GRANADA.
  4. Marko Klašnja, 2008. "Electoral Rules, Forms of Government, and Political Budget Cycles in Transition Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(2), pages 185-218, June.
  5. Meloni, Osvaldo, 2011. "Budget Manipulation and Vertical Fiscal Imbalance," MPRA Paper 50694, University Library of Munich, Germany.

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