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Political Business Cycles at the Municipal Level

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Abstract

This article tests for the existence of rational political business cycles models using a large and unexplored data set of Portuguese municipalities. The data set is well-suited for this purpose because it provides a high level of detail on expenditure items, because Portuguese municipalities are homogeneous with respect to policy instruments and institutions and follow an exogenously determined election schedule. Estimation results clearly reveal the existence of opportunistic behaviour by local governments. Expenditures increase in pre-election periods, especially on items that are highly visible to the electorate (e.g., highways and streets). This suggests an effort to signal competence and improve chances of re-election.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 4/2004.

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Date of creation: 2004
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Handle: RePEc:nip:nipewp:4/2004

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Keywords: Political business cycles; public finance; local governments.;

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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.
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  13. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-88, July.
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  15. Per Pettersson-Lidbom, 2001. "An Empirical Investigation of the Strategic Use of Debt," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 570-583, June.
  16. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  17. Linda Gonçalves Veiga, 2002. "The Political Economy of Local Governments' Expenditures," NIPE Working Papers 8/2002, NIPE - Universidade do Minho.
  18. Francisco José Veiga & Linda Gonçalves Veiga, 2001. "The determinants of vote intentions in Portugal," NIPE Working Papers 6/2001, NIPE - Universidade do Minho.
  19. Baleiras, Rui Nuno & da Silva Costa, Jose, 2004. "To be or not to be in office again: an empirical test of a local political business cycle rationale," European Journal of Political Economy, Elsevier, vol. 20(3), pages 655-671, September.
  20. Galli, Emma & Rossi, Stefania P S, 2002. " Political Budget Cycles: The Case of the Western German Lander," Public Choice, Springer, vol. 110(3-4), pages 283-303, March.
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