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Party alignment and political budget cycles: the Argentine provinces

  • Daniel Lema
  • Jorge M. Streb

The links between subnational political budget cycles (PBCs) and the national government in federal countries have seldom been studied. We study the behavior of the budget balance, public expenditures, and revenues in Argentine provinces during the 1985–2001 period. We find that in election years public expenditures increase, but revenues also do — a result exactly contrary to the predictions of rational opportunistic models of aggregate PBCs — and the budget deficit does not increase significantly. Since the increase in provincial revenues is due to larger federal transfers, we incorporate the influence of party alignment between governors and president. Public expenditures in election years increase in aligned provinces because of larger federal transfers, without affecting the budget deficit; in contrast, the budget deficit tends to increase in unaligned provinces. The federal government thus plays a key role in subnational PBCs, with an electoral cycle in the allocation of federal transfers.

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Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 520.

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Length: 48 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:cem:doctra:520
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  1. Susanne Lohmann, 1998. "Rationalizing the Political Business Cycle: A Workhorse Model," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 1-17, 03.
  2. Adi Brender & Allan Drazen, 2004. "Political Budget Cycles in New versus Established Democracies," NBER Working Papers 10539, National Bureau of Economic Research, Inc.
  3. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  4. Cecilia Rumi, 2014. "National electoral cycles in transfers to subnational jurisdictions. Evidence from Argentina," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 161-178, May.
  5. 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.
  6. Bugarin, Mauricio Soares & Ferreira, Ivan Fecury, 2007. "Transferências Voluntárias e Ciclo Político-Orçamentário no Federalismo Fiscal Brasileiro," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 61(3).
  7. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  8. Shi, Min & Svensson, Jakob, 2006. "Political budget cycles: Do they differ across countries and why?," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1367-1389, September.
  9. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
  10. Shanna Rose, 2006. "Do fiscal rules dampen the political business cycle?," Public Choice, Springer, vol. 128(3), pages 407-431, September.
  11. Medina, Leandro & Lema, Daniel, 2004. "Electoral Budget Cycles: The case of the Argentine Provinces," MPRA Paper 21504, University Library of Munich, Germany.
  12. Valentino Larcinese & Leonzio Rizzo & Cecilia Testa, 2005. "Allocating the US federal budget to the states: the impact of the President," LSE Research Online Documents on Economics 3611, London School of Economics and Political Science, LSE Library.
  13. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 1-16.
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