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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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  • Shanna Rose, 2006. "Do fiscal rules dampen the political business cycle?," Public Choice, Springer, vol. 128(3), pages 407-431, September.
  • Handle: RePEc:kap:pubcho:v:128:y:2006:i:3:p:407-431
    DOI: 10.1007/s11127-005-9007-7
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