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Fiscal Policy over the Election Cycle in Low-Income Countries

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  • Christian H Ebeke
  • Dilan Ölcer

Abstract

Focusing on Low-Income Countries, we investigate the behavior of fiscal variables during and after elections. The results indicate that during election years, government consumption significantly increases and leads to higher fiscal deficits. During the two years following elections, the fiscal adjustment takes the form of increased revenue mobilization in trade taxes and cuts to government investment, with no significant cuts in government consumption. Using a new dataset on national fiscal rules and IMF programs, we find that both the presence of fiscal rules and IMF programs help dampen the magnitude of the political budget cycle in LICs. We conclude that elections not only imply a macroeconomic cost when they take place but also trigger a painful fiscal adjustment in which public investment is largely sacrificed.

Suggested Citation

  • Christian H Ebeke & Dilan Ölcer, 2013. "Fiscal Policy over the Election Cycle in Low-Income Countries," IMF Working Papers 13/153, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/153
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    Cited by:

    1. Ademmer, Esther & Dreher, Ferdinand, 2014. "Institutional constraints to political budget cycles in the enlarged EU," Kiel Working Papers 1964, Kiel Institute for the World Economy (IfW).
    2. Christian H Ebeke & Constant A Lonkeng Ngouana, 2015. "Energy Subsidies and Public Social Spending; Theory and Evidence," IMF Working Papers 15/101, International Monetary Fund.
    3. repec:eee:ecosys:v:41:y:2017:i:3:p:367-378 is not listed on IDEAS
    4. Gupta, Sanjeev & Liu, Estelle X. & Mulas-Granados, Carlos, 2016. "Now or later? The political economy of public investment in democracies," European Journal of Political Economy, Elsevier, vol. 45(C), pages 101-114.
    5. Antoine Cazals & Pierre Mandon, 2015. "Political Budget Cycles: Manipulation of Leaders or Bias from Research? A Meta-Regression Analysis," Working Papers halshs-01238883, HAL.
    6. Klomp, Jeroen & de Haan, Jakob, 2016. "Election cycles in natural resource rents: Empirical evidence," Journal of Development Economics, Elsevier, vol. 121(C), pages 79-93.
    7. Heinemann, Friedrich & Moessinger, Marc-Daniel & Yeter, Mustafa, 2015. "Do Fiscal Rules Constrain Fiscal Policy? A Meta-Regression-Analysis," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112800, Verein für Socialpolitik / German Economic Association.
    8. Urbain T. Yogo1 & Martine M & Ngo Njib, 2016. "Political competition and tax revenues in developing countries," WIDER Working Paper Series 116, World Institute for Development Economic Research (UNU-WIDER).
    9. Bharatee Dash & Angara Raja, 2014. "Do political determinants affect revenue collection? Evidence from the Indian states," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(3), pages 253-278, September.
    10. Tobias Rommel & Paul Schaudt, 2016. "First Impressions: How Leader Changes Affect Bilateral Aid," CESifo Working Paper Series 6047, CESifo Group Munich.
    11. Heiko T. Burret & Lars P. Feld, 2016. "Effects of Fiscal Rules - 85 Years' Experience in Switzerland," CESifo Working Paper Series 6063, CESifo Group Munich.
    12. Sanjeev Gupta & Estelle X Liu & Carlos Mulas-Granados, 2015. "Now or Later? The Political Economy of Public Investment in Democracies," IMF Working Papers 15/175, International Monetary Fund.

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