Full Characterisation of the Political Economy of Fiscal Adjustment: Evidence from Spanish Municipalities
By means of a dynamic panel data analysis, and using a database from municipalities of the province of Barcelona (1993-99), we describe their process of fiscal adjustment to a shock in tax capacity. About 25% of the shock is internalized through an increase in tax effort, 35% through a reduction in public expenditure (mainly investment), while the rest is covered by an increase in the level of debt (i.e., the adjustment is delayed). However, this process of adjustment is very much influenced by the political situation of the municipality. Coalition and minority governments ("weak" governments) tend to delay the (unavoidable) adjustment, and 70% of their shock is covered by an increase in the level of debt, while the rest of municipalities ("strong" governments) adjust immediately. Leftist governments mostly react through increases in tax effort, while rightist governments reduce public expenditure to a greater extent. Finally, we find that municipalities are relatively reluctant to decrease taxes, that is, they react differently to a negative (28%) and a positive (26%) shock with regard to the level of tax effort.
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: Carrer del Tinent Coronel Valenzuela 1-11, 08034 Barcelona|
Phone: 93 403 46 46
Fax: 93 403 98 32
Web page: http://www.ieb.ub.edu
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Poterba, James M, 1994.
"State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics,"
Journal of Political Economy,
University of Chicago Press, vol. 102(4), pages 799-821, August.
- James M. Poterba, 1993. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc.
- Lederman, Daniel & Loayza, Norman & Reis Soares, Rodrigo, 2001.
"Accountability and corruption : political institutions matter,"
Policy Research Working Paper Series
2708, The World Bank.
- Daniel Lederman & Norman V. Loayza & Rodrigo R. Soares, 2005. "Accountability And Corruption: Political Institutions Matter," Economics and Politics, Wiley Blackwell, vol. 17, pages 1-35, 03.
- Kenneth Rogoff, 1987.
"Equilibrium Political Budget Cycles,"
NBER Working Papers
2428, National Bureau of Economic Research, Inc.
- Volkerink, BjÃ¸rn & Haan, Jacob de, 2000. "Fragmented government effects on fiscal policy: new evidence," CCSO Working Papers 200006, University of Groningen, CCSO Centre for Economic Research.
- Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
- Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
- Wittman, Donald, 1977. "Candidates with policy preferences: A dynamic model," Journal of Economic Theory, Elsevier, vol. 14(1), pages 180-189, February.
- André Sapir & Khalid Sekkat, 2002.
"Political cycles, fiscal deficits and output spillovers in Europe,"
ULB Institutional Repository
2013/7346, ULB -- Universite Libre de Bruxelles.
- Sapir, Andre & Sekkat, Khalid, 2002. "Political Cycles, Fiscal Deficits, and Output Spillovers in Europe," Public Choice, Springer, vol. 111(1-2), pages 195-205, March.
- Jose Tavares, 2000.
"Does Right or Left Matter? Cabinets, Credibility and Fiscal Adjustments,"
Econometric Society World Congress 2000 Contributed Papers
1548, Econometric Society.
- Tavares, Jose, 2004. "Does right or left matter? Cabinets, credibility and fiscal adjustments," Journal of Public Economics, Elsevier, vol. 88(12), pages 2447-2468, December.
- Blanchard, Olivier & Wolfers, Justin, 2000.
"The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,"
Royal Economic Society, vol. 110(462), pages C1-33, March.
- Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
- Melitz, Jacques & Zumer, Frederic, 2002. "Regional redistribution and stabilization by the center in Canada, France, the UK and the US:: A reassessment and new tests," Journal of Public Economics, Elsevier, vol. 86(2), pages 263-286, November.
- Brender, Adi, 2003. "The effect of fiscal performance on local government election results in Israel: 1989-1998," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2187-2205, September.
- Per Pettersson-Lidbom, 2001. "An Empirical Investigation of the Strategic Use of Debt," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 570-583, June.
- de Haan, Jakob & Sturm, Jan-Egbert & Beekhuis, Geert, 1999. "The Weak Government Thesis: Some New Evidence," Public Choice, Springer, vol. 101(3-4), pages 163-76, December.
- International Monetary Fund, 2001. "Fiscal Decentralization and Governance; A Cross-Country Analysis," IMF Working Papers 01/71, International Monetary Fund.
- Bruno Heyndels & Frank Van Driessche, 2002. "How municipalities react to budgetary windfalls," Economics of Governance, Springer, vol. 3(3), pages 211-226, November.
- repec:dgr:rugccs:200006 is not listed on IDEAS
- Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
- Timothy Besley & Anne Case, 1993.
"Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits,"
NBER Working Papers
4575, National Bureau of Economic Research, Inc.
- Timothy Besley & Anne Case, 1995. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 769-798.
- Edin, P-A. & Ohlsson, H., 1990.
"Political Determinants Of Budget Deficits: Coalition Effects Versus Minority Effects,"
1990k, Uppsala - Working Paper Series.
- Edin, Per-Anders & Ohlsson, Henry, 1991. "Political determinants of budget deficits: Coalition effects versus minority effects," European Economic Review, Elsevier, vol. 35(8), pages 1597-1603, December.
- de Haan, Jakob & Sturm, Jan-Egbert, 1997. "Political and economic determinants of OECD budget deficits and government expenditures: A reinvestigation," European Journal of Political Economy, Elsevier, vol. 13(4), pages 739-750, December.
- Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
- John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
- Alesina, Alberto Francesco & Perotti, Roberto & Tavares, Jose, 1998. "The Political Economy of Fiscal Adjustments," Scholarly Articles 12553724, Harvard University Department of Economics.
- Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
- Seabright, Paul, 1994.
"Accountability and Decentralization in Government: An Incomplete Contracts Model,"
CEPR Discussion Papers
889, C.E.P.R. Discussion Papers.
- Seabright, Paul, 1996. "Accountability and decentralisation in government: An incomplete contracts model," European Economic Review, Elsevier, vol. 40(1), pages 61-89, January.
- 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.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Kenneth Rogoff & Anne Sibert, 1988.
"Elections and Macroeconomic Policy Cycles,"
Review of Economic Studies,
Oxford University Press, vol. 55(1), pages 1-16.
When requesting a correction, please mention this item's handle: RePEc:ieb:wpaper:382874art156. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.