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Election Results and Opportunistic Policies: An Integrated Approach

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The literature on political business cycles suggests that politicians systematically manipulate economic and fiscal conditions before elections. The literature on vote and popularity functions suggests that economic conditions systematically affect election outcomes. This paper integrates these two strands of literature. We use Rogo? (1990)’s model of the rational political business cycle to derive the two-way relationship between the win-margin of the incumbent politician and the size of the opportunistic distortion of fiscal policy. This relationship is estimated, for a panel of 275 Portuguese municipalities (from 1979 to 2001), as a system of simultaneous equations (by GMM). The results clearly support the theoretical predictions: (1) opportunism pays o?, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when they expect a close election race.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 24/2007.

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Date of creation: 2007
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Handle: RePEc:nip:nipewp:24/2007

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
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Keywords: Voting and popularity functions; opportunism; rational political business cycles; local government; system estimation; Portugal.;

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  1. Blais, Andre & Nadeau, Richard, 1992. " The Electoral Budget Cycle," Public Choice, Springer, vol. 74(4), pages 389-403, December.
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  4. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," Economics Working Papers 0047, Institute for Advanced Study, School of Social Science.
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  24. Seitz, Helmut, 2000. " Fiscal Policy, Deficits and Politics of Subnational Governments: The Case of the German Laender," Public Choice, Springer, vol. 102(3-4), pages 183-218, March.
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Cited by:
  1. Jon H. Fiva & Gisle James Natvik, 2009. "Do re-election probabilities influence public investment?," Working Paper 2009/13, Norges Bank.
  2. Bernardino Benito & Francisco Bastida & Cristina Vicente, 2013. "Municipal elections and cultural expenditure," Journal of Cultural Economics, Springer, vol. 37(1), pages 3-32, February.

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