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Explaining budgetary indiscipline: evidence from spanish municipalities

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Ignacio Lago-Peñas ()
Santiago Lago-Peñas ()

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Abstract

The quest for political support drives to upward deviations from forecasted public deficits when i) budget procedures are soft, ii) breaking promises involving higher expenditures and lower taxes is costly in political terms, and iii) ex–post control by voters and political opposition is imperfect. This hypothesis is tested using data from Spanish municipalities during the period 1985-1995. Econometric estimates show that single-party majority incumbents are less prone to change forecasted budgets. While their forecasted deficits tend to be higher, they have lower actual deficits, which may be interpreted as the consequence of a higher consistency in the budgetary process. Secondly, upward deviations in deficit tend to rise in election years. While forecasted deficits are not different in election years, actual deficits are. Moreover, elections cause systematic downward deviations in revenues. On the contrary, the ideology of the incumbent is not relevant to explain deviations in deficit. Key words: Budget deficits, local governments, budget procedures, electoral promises. JEL CLASIFFICATION: H74

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa04p613.

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Date of creation: Aug 2004
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Handle: RePEc:wiw:wiwrsa:ersa04p613

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  1. 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(1998-1), pages 197-266. [Downloadable!]
  2. Feenberg, Daniel R, et al, 1989. "Testing the Rationality of State Revenue Forecasts," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 300-308, May. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
  4. Blais, Andre & Nadeau, Richard, 1992. " The Electoral Budget Cycle," Public Choice, Springer, vol. 74(4), pages 389-403, December.
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  1. Stijn Goeminne & Benny Geys & Carine Smolders, 2008. "Political fragmentation and projected tax revenues: evidence from Flemish municipalities," International Tax and Public Finance, Springer, vol. 15(3), pages 297-315, June. [Downloadable!] (restricted)
  2. Javier Capó Parrilla & Francisco Gómez García, . "Nuevas Estimaciones Del Pleno Empleo De Las Regiones Españolas," Working Papers 18-05 Classification-JEL , Instituto de Estudios Fiscales. [Downloadable!]
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