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Creative accounting and electoral motives: Evidence from OECD countries

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  • Reischmann, Markus

Abstract

Using an unbalanced panel of 27 OECD countries over the period 1970–2011, I examine whether electoral motives influenced creative accounting. Governments engage in “below-the-line” operations, such as transactions in financial assets, that do not show up in the deficit figures but give rise to changes in debt. I use the difference between the change in public debt and the deficit (stock-flow adjustment) to measure creative accounting. The results suggest that governments strategically engaged in creative accounting before regular elections so as to sugarcoat the budget balance. I also provide an overview of government interventions that gave rise to large stock-flow adjustments.

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  • Reischmann, Markus, 2016. "Creative accounting and electoral motives: Evidence from OECD countries," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 243-257.
    • Handle: RePEc:eee:jcecon:v:44:y:2016:i:2:p:243-257
    DOI: 10.1016/j.jce.2015.07.001
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    Cited by:

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    2. Caruso, Alberto & Reichlin, Lucrezia & Ricco, Giovanni, 2019. "Financial and fiscal interaction in the Euro Area crisis: This time was different," European Economic Review, Elsevier, vol. 119(C), pages 333-355.
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    4. Florian Dorn & Stefanie Gaebler & Felix Roesel, 2021. "Ineffective fiscal rules? The effect of public sector accounting standards on budgets, efficiency, and accountability," Public Choice, Springer, vol. 186(3), pages 387-412, March.
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    6. Dominik Hecker & Dano Meiske & Niklas Potrafke & Marina Riem & Christoph Schinke, 2016. "Schuldenbremsen in den deutschen Bundesländern: Worte und Taten der Landesregierungen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(02), pages 14-22, January.
    7. Björn Kauder & Manuela Krause & Niklas Potrafke, 2018. "Electoral cycles in MPs’ salaries: evidence from the German states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 981-1000, August.
    8. Dalle Nogare, Chiara & Kauder, Björn, 2017. "Term limits for mayors and intergovernmental grants: Evidence from Italian cities," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 1-11.
    9. Christopher Gandrud & Mark Hallerberg, 2015. "What is a Financial Crisis? Efficiently Measuring Real-Time Perceptions of Financial Market Stress with an Application to Financial Crisis Budget Cycles," CESifo Working Paper Series 5632, CESifo.
    10. Marina Riem, 2016. "Corporate investment decisions under political uncertainty," ifo Working Paper Series 221, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    11. Martin T Braml & Gabriel J Felbermayr, 2019. "What Do We Really Know about the Transatlantic Current Account?," CESifo Economic Studies, CESifo, vol. 65(3), pages 255-274.
    12. Marina Riem, 2016. "Does political uncertainty influence firm owners‘ business perceptions?," ifo Working Paper Series 226, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    13. Potrafke, Niklas, 2017. "Partisan politics: The empirical evidence from OECD panel studies," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 712-750.
    14. Florian Dorn, 2021. "Elections and Government Efficiency," ifo Working Paper Series 363, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    15. repec:hal:spmain:info:hdl:2441/oqlq05oa890qa4mag2svqh4ht is not listed on IDEAS
    16. Jäger, Kai, 2016. "The Role of Regime Type in the Political Economy of Foreign Reserve Accumulation," European Journal of Political Economy, Elsevier, vol. 44(C), pages 79-96.
    17. Potrafke Niklas & Riem Marina & Schinke Christoph, 2016. "Debt Brakes in the German States: Governments’ Rhetoric and Actions," German Economic Review, De Gruyter, vol. 17(2), pages 253-275, May.
    18. Marcela De Castro-Valderrama, 2021. "Present-biased Government, Creative Accounting and a Pitfall in Balanced Budget Rules," Borradores de Economia 1183, Banco de la Republica de Colombia.
    19. Caruso, Alberto & Reichlin, Lucrezia & Ricco, Giovanni, 2019. "Financial and fiscal interaction in the Euro Area crisis: This time was different," European Economic Review, Elsevier, vol. 119(C), pages 333-355.
    20. Hirota, Haruaki & Yunoue, Hideo, 2022. "Fiscal rules and creative accounting: Evidence from Japanese municipalities," Journal of the Japanese and International Economies, Elsevier, vol. 63(C).
    21. Iwona Franczak, 2021. "Creative Accounting in Poland’s Sub-Sector of Local Governments," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 997-1017.
    22. Clemens Fuest & Klaus Gründler & Niklas Potrafke & Marcel Fratzscher & Alexander Kriwoluzky & Claus Michelsen & Michael Hüther & Peter Bofinger & Lars P. Feld & Wolf Heinrich Reuter, 2019. "Schuldenbremse — Investitionshemmnis oder Vorbild für Europa? [Debt Brake — Investment Barrier or Role Model for Europe?]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 99(5), pages 307-329, May.
    23. Caruso, Alberto & Reichlin, Lucrezia & Ricco, Giovanni, 2019. "Financial and fiscal interaction in the Euro Area crisis: This time was different," European Economic Review, Elsevier, vol. 119(C), pages 333-355.
    24. Anna Laura Mancini & Pietro Tommasino, 2022. "Fiscal rules and the reliability of public investment plans: evidence from local governments," Temi di discussione (Economic working papers) 1360, Bank of Italy, Economic Research and International Relations Area.
    25. László, Csaba, 2018. "A magánnyugdíjpénztári rendszer "elszámolása" ["Reckoning up" the private pension system]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 861-902.

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    More about this item

    Keywords

    Stock-flow adjustments; Creative accounting; Public debt; Political business cycles;
    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
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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