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Parties, institutions and political budget cycles at the municipal level

  • Marika Cioffi

    ()

    (Bank of Italy)

  • Giovanna Messina

    ()

    (Bank of Italy)

  • Pietro Tommasino

    ()

    (Bank of Italy)

We study the magnitude, the determinants and the electoral consequences of pre-electoral fiscal manipulation by incumbent politicians. To this aim, we build a dataset covering all the Italian municipalities. We document several facts. First, there is a clear political cycle in the path of expenditures, driven by capital outlays. Second, only mayors not affiliated to a national political party induce an election-driven expenditure cycle. Third, pre-electoral expenditure boosts increase re-election prospects of the incumbent only if she is not affiliated to a party. These results are consistent with the hypothesis that national parties have both the incentives and the resources to curb the pre-electoral profligacy of party-affiliated mayors. We also consider the impact of formal institutions. In particular, we find that budget rules reduce the effects of the political cycle, whereas binding term limits seem to be ineffective.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 885.

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Date of creation: Oct 2012
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Handle: RePEc:bdi:wptemi:td_885_12
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