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Using Real-Time Data to Test for Political Budget Cycles

Listed author(s):
  • Richard Jong-A-Pin
  • Jan-Egbert Sturm
  • Jakob de Haan

We use real ]time annual data on the fiscal balance, government current spending, current revenues and net capital outlays as published at a half yearly frequency in the OECD Economic Outlook for 25 OECD countries. For each fiscal year t we have a number of forecasts, a first release, and subsequent revisions. It turns out that revisions in the fiscal balance data are not affected by elections. However, we do find that governments spend more than reported before an election which provides support for moral-hazard type of political budget cycle (PBC) models: through hidden efforts the incumbent tries to enhance his perceived competence. We also find that governments had higher current receipts than reported before an election, which is in line with adverse ]selection type of PBC models in which incumbents signal competence through expansionary fiscal policy before the elections.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-09/cesifo1_wp3939.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3939.

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Date of creation: 2012
Handle: RePEc:ces:ceswps:_3939
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  1. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
  2. Mika Tujula & Guido Wolswijk, 2007. "Budget balances in OECD countries: what makes them change?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(1), pages 1-14, March.
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  8. Jacob A. Mincer & Victor Zarnowitz, 1969. "The Evaluation of Economic Forecasts," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 3-46 National Bureau of Economic Research, Inc.
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  17. Cimadomo, Jacopo, 2011. "Real-time data and fiscal policy analysis: a survey of the literature," Working Paper Series 1408, European Central Bank.
  18. Min Shi & Jakob Svensson, 2003. "Political Budget Cycles: A Review of Recent Developments," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 29, pages 67-76.
  19. Stark, Tom & Croushore, Dean, 2002. "Forecasting with a real-time data set for macroeconomists," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 507-531, December.
  20. Georgios Efthyvoulou, 2012. "Political budget cycles in the European Union and the impact of political pressures," Public Choice, Springer, vol. 153(3), pages 295-327, December.
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