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How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Cross-Section of Countries

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  • Adi Brender
  • Allan Drazen

Abstract

Conventional wisdom is that good economic conditions or expansionary fiscal policy help incumbents get re-elected, but this has not been tested in a large cross-section of countries. We test these arguments in a sample of 74 countries over the period 1960-2003. We find no evidence that deficits help reelection in any group of countries -- developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with different levels of democracy. In developed countries, especially old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar negative electoral effects of deficits in the earlier years of an incumbent's term in office. Higher growth rates of real GDP per-capita raise the probability of reelection only in the less developed countries and in new democracies, but voters are affected by growth over the leader's term in office rather than in the election year itself. Low inflation is rewarded by voters only in the developed countries. The effects we find are not only statistically significant, but also quite substantial quantitatively. We also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11862.

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Date of creation: Dec 2005
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Handle: RePEc:nbr:nberwo:11862

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  1. Paldam, Martin, 1979. " Is There an Election Cycle? A Comparative Study of National Accounts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(2), pages 323-42.
  2. Robert J. Shiller, 1996. "Why Do People Dislike Inflation?," NBER Working Papers 5539, National Bureau of Economic Research, Inc.
  3. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
  4. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  5. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  6. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  7. Adi Brender & Allan Drazen, 2004. "Political Budget Cycles in New versus Established Democracies," NBER Working Papers 10539, National Bureau of Economic Research, Inc.
  8. Fair, Ray C, 1978. "The Effect of Economic Events on Votes for President," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 159-73, May.
  9. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  10. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  11. Faust, Jon & Irons, John S., 1999. "Money, politics and the post-war business cycle," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 61-89, February.
  12. Peltzman, Sam, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 327-61, May.
  13. Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
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Cited by:
  1. Arvate, Paulo Roberto & Avelino, George & Tavares, José, 2009. "Fiscal conservatism in a new democracy: "Sophisticated" versus "naïve" voters," Economics Letters, Elsevier, vol. 102(2), pages 125-127, February.
  2. Axel Dreher & Roland Vaubel, 2005. "Foreign Exchange Intervention And The Political Business Cycle: A Panel Data Analysis," International Finance 0505009, EconWPA.
  3. Sakurai, Sergio N. & Menezes, Naercio A., 2008. "Fiscal policy and reelection in Brazilian municipalities," Insper Working Papers wpe_117, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  4. Carlos Eduardo Soares Gonçalves & Fernando Roberto Fenolio, 2007. "Ciclos Eleitorais E Política Monetária: Evidências Para O Brasil," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 107, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  5. Paulo Roberto Arvate & George Avelino & José A. Tavares, 2007. "Budget Deficits And Reelection Prospects: Voters As Fiscal Conservatives In A New Democracy," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 106, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Khemani, Stuti & Wane, Waly, 2008. "Populist fiscal policy," Policy Research Working Paper Series 4762, The World Bank.

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