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Political Opportunism and Countercyclical Fiscal Policy in Election-year Recessions

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Abstract

Political budget cycles (PBCs) have been well documented in the literature, albeit not for all circumstances. However, no work has been done on the impact of economic growth on the magnitude of PBCs. The theoretical model argues that a government has an incentive to increase fiscal manipulations when a recession is expected to hit and curtail re-election chances; this amounts to countercyclical policy for opportunistic rather than Keynesian motives. Very robust evidence for this behaviour is found in Portuguese municipalities; in election years, budget deficits go up even more and significantly so, when a recession is expected.

Suggested Citation

  • Frank Bohn & Francisco José Veiga, 2017. "Political Opportunism and Countercyclical Fiscal Policy in Election-year Recessions," NIPE Working Papers 01/2017, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:01/2017
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    Cited by:

    1. Raveh, Ohad & Tsur, Yacov, 2020. "Reelection, growth and public debt," European Journal of Political Economy, Elsevier, vol. 63(C).
    2. Frank Bohn & Jan-Egbert Sturm, 2021. "Do expected downturns kill political budget cycles?," The Review of International Organizations, Springer, vol. 16(4), pages 817-841, October.
    3. Frank Bohn & Francisco José Veiga, 2019. "Elections, recession expectations and excessive debt: an unholy trinity," Public Choice, Springer, vol. 180(3), pages 429-449, September.
    4. Bohn, Frank & Veiga, Francisco José, 2021. "Political forecast cycles," European Journal of Political Economy, Elsevier, vol. 66(C).

    More about this item

    Keywords

    political budget cycles; Keynesian countercyclical policies; political opportunism; local governments; Portugal.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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