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Do fiscal rules dampen the political business cycle?

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  • Shanna Rose

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    Abstract

    This paper develops and tests the theory that fiscal rules limit politicians' ability to manipulate the budget for electoral gain. Using panel data from the American states, I find evidence suggesting that stringent balanced budget rules dampen the political business cycle. That is, while spending rises before and falls after elections in states that can carry deficits into the next fiscal year, this pattern does not exist in states with strict “no-carry” rules. Neither binding gubernatorial term limits nor the partisan composition of government appear to significantly affect the magnitude of the political business cycle. Copyright Springer Science+Business Media, Inc. 2006

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    File URL: http://hdl.handle.net/10.1007/s11127-005-9007-7
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    Article provided by Springer in its journal Public Choice.

    Volume (Year): 128 (2006)
    Issue (Month): 3 (September)
    Pages: 407-431

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    Handle: RePEc:kap:pubcho:v:128:y:2006:i:3:p:407-431
    DOI: 10.1007/s11127-005-9007-7
    Contact details of provider: Web page: http://www.springer.com

    Order Information: Web: http://www.springer.com/economics/public+finance/journal/11127/PS2

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    1. Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1991. "Macroeconomic Policy and Elections in OECD Democracies," NBER Working Papers 3830, National Bureau of Economic Research, Inc.
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    16. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    17. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    18. Cohen, Gerald & Alesina, Alberto & Roubini, Nouriel, 1992. "Macroeconomic Policy and Elections in OECD Democracies," Scholarly Articles 4553023, Harvard University Department of Economics.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A Better Balanced Budget Amendment
      by Matt Mitchell in Neighborhood Effects on 2011-08-05 21:27:41
    2. Balanced Budget Rules and Unintended Consequences
      by Matt Mitchell in Neighborhood Effects on 2011-07-21 14:22:27
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