Timing of Opportunism: How Fiscal Rules Reshaped Political Cycles in Brazil

This study examines how reelection incentives shape the fiscal behavior of Brazilian mayors under a binding fiscal framework. Using a regression discontinuity design on close elections between 2005 and 2020, we compare first- and second-term incumbents. We find that first-term mayors facing reelection increase both spending and revenues, largely through intergovernmental transfers. However, these effects do not occur in the electoral year. Instead, fiscal expansion is concentrated in the first three years of the mandate, with a pronounced increase in the third year. Our findings indicate that Brazil’s Fiscal Responsibility Law did not eliminate political budget cycles among reelection-seeking first-term mayors but rather reshaped their timing by preventing end-of-term fiscal concentration. Electoral op portunism persists, yet it is strategically anticipated to comply with legal constraints. This evidence highlights how fiscal institutions can modify the temporal structure of political incentives without fully neutralizing them.