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Temporal aggregation in political budget cycles

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  • Jorge M. Streb

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  • Daniel Lema
  • Pablo Garofalo

Abstract

We build a panel with quarterly data from Latin American and OECD countries over the 1980-2005 period. Annual data strongly underestimate the effect of political budget cycles (PBCs) when a pre-electoral fiscal expansion is followed by a post-electoral contraction, since the effects cancel out in the calendar year of elections, but not in the four quarters up to elections. Quarterly data show there is a significant fiscal expansion in the four pre-electoral quarters that extends, perhaps, to the first post-electoral quarter. In the next three post-electoral quarters, there is a compensating fiscal contraction only in Latin America, so PBCs contributed to public debt build-up in the OECD. Our results contradict a widespread consensus on PBCs being only a developing country phenomena - a conclusion which might have been affected by temporal aggregation - and imply that studies of electoral cycles should be done from now on with quarterly, not annual, data.

Suggested Citation

  • Jorge M. Streb & Daniel Lema & Pablo Garofalo, 2012. "Temporal aggregation in political budget cycles," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Fall 2012), pages 39-78, August.
  • Handle: RePEc:col:000425:010031
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    References listed on IDEAS

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    1. Brender, Adi & Drazen, Allan, 2005. "Political budget cycles in new versus established democracies," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1271-1295, October.
    2. Lorena Barberia & George Avelino, 2011. "Do political budget cycles differ in Latin American democracies?," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Spring 20), pages 101-146, January.
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    9. Jorge Streb & Gustavo Torrens, 2013. "Making rules credible: divided government and political budget cycles," Public Choice, Springer, vol. 156(3), pages 703-722, September.
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    11. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
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    Citations

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    Cited by:

    1. Eric Dubois, 2016. "Political business cycles 40 years after Nordhaus," Public Choice, Springer, vol. 166(1), pages 235-259, January.
    2. Antoine Cazals & Pierre Mandon, 2016. "Political Budget Cycles: Manipulation from Leaders or Manipulation from Researchers? Evidence from a Meta-Regression Analysis," Working Papers halshs-01320586, HAL.
    3. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01291401, HAL.
    4. Petrarca, Ilaria, 2014. "No news is costly news: The link between the diffusion of the press and public spending," European Journal of Political Economy, Elsevier, vol. 34(C), pages 68-85.
    5. Antoine Cazals & Pierre Mandon, 2015. "Political Budget Cycles: Manipulation of Leaders or Bias from Research? A Meta-Regression Analysis," Working Papers halshs-01238883, HAL.
    6. Antoine CAZALS & Pierre MANDON, 2016. "Political Budget Cycles: Manipulation from Leaders or Manipulation from Researchers? Evidence from a Meta-Regression Analysis," Working Papers 201609, CERDI.
    7. repec:hal:journl:hal-01291401 is not listed on IDEAS
    8. Daniel Lema & Jorge M. Streb, 2013. "Ciclos electorales en política fiscal," CEMA Working Papers: Serie Documentos de Trabajo. 514, Universidad del CEMA.
    9. Ilaria Petrarca, 2013. "No news is costly news: the link between the diffusion of the press and public spending," Working Papers 16/2013, University of Verona, Department of Economics.
    10. Andrew Q. Philips, 2016. "Seeing the forest through the trees: a meta-analysis of political budget cycles," Public Choice, Springer, vol. 168(3), pages 313-341, September.
    11. Jorge M. Streb & Daniel Lema & Pablo Garofalo, 2013. "Electoral cycles in international reserves: Evidence from Latin America and the OECD," CEMA Working Papers: Serie Documentos de Trabajo. 526, Universidad del CEMA.
    12. Klien, Michael, 2014. "Tariff increases over the electoral cycle: A question of size and salience," European Journal of Political Economy, Elsevier, vol. 36(C), pages 228-242.
    13. Endrit Lami & Drini Imami, 2013. "Searching for Political Fiscal Cycles in Hungary," Contemporary Economics, University of Finance and Management in Warsaw, vol. 7(4), December.

    More about this item

    Keywords

    political budget cycles; pre- and post-electoral effects; temporal aggregation; checks and balances;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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