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The Political Budget Cycle is Where You Can't See It: Transparency and Fiscal Manipulation

Author

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  • James E. Alt

    (Department of Government, Harvard University)

  • David Dreyer Lassen

    (Institute of Economics, University of Copenhagen)

Abstract

We investigate the effects of fiscal transparency and political polarization on the prevalence of electoral cycles in fiscal balance. The recent political economy literature on electoral cycles identifies such cycles mainly in weak and recent democracies. In contrast, we show, conditioning on a new index of institutional fiscal transparency, that electoral cycles in fiscal balance are a feature also of advanced industrialized economies. Using a sample of nineteen OECD countries in the 1990’s, we identify a persistent pattern of electoral cycles in low(er) transparency countries, while no such cycles can be observed in high(er) transparency countries. Furthermore, we find, in accordance with recent theory, that electoral cycles are larger in more politically polarized countries.

Suggested Citation

  • James E. Alt & David Dreyer Lassen, 2005. "The Political Budget Cycle is Where You Can't See It: Transparency and Fiscal Manipulation," EPRU Working Paper Series 05-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:05-03
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    File URL: http://www.econ.ku.dk/epru/files/wp/wp-05-03.pdf
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    References listed on IDEAS

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    1. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    2. Alejandro Saporiti & Jorge Streb, 2008. "Separation of powers and political budget cycles," Public Choice, Springer, vol. 137(1), pages 329-345, October.
    3. Jorge M. Streb & Daniel Lema & Gustavo Torrens, 2009. "Checks and Balances on Political Budget Cycles: Cross-Country Evidence," Kyklos, Wiley Blackwell, vol. 62(3), pages 426-447, August.
    4. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1301-1338.
    5. Sam Peltzman, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 327-361.
    6. Susanne Lohmann, 1998. "Rationalizing the Political Business Cycle: A Workhorse Model," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 1-17, March.
    7. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, January.
    8. 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.
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    Citations

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    Cited by:

    1. Mark Mink & Jakob de Haan, 2005. "Has the Stability and Growth Pact Impeded Political Budget Cycles in the European Union?," CESifo Working Paper Series 1532, CESifo Group Munich.
    2. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers ECO2007/37, European University Institute.
    3. José Antonio Peña Ramos & César Vargas Díaz & Iván Medina Iborra, 2012. "Difusión y comparabilidad de la información económico -financiera on -line : el caso de Iberoamérica," REVISTA FACULTAD DE CIENCIAS ECONÓMICAS, UNIVERSIDAD MILITAR NUEVA GRANADA, June.
    4. Meloni, Osvaldo, 2011. "Budget Manipulation and Vertical Fiscal Imbalance," MPRA Paper 50694, University Library of Munich, Germany.
    5. Marko Klašnja, 2008. "Electoral Rules, Forms of Government, and Political Budget Cycles in Transition Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(2), pages 185-218, June.
    6. Yves M. Tehou TEKENG & Mesbah Fathy SHARAF, 2015. "Fiscal Transparency, Measurement and Determinants: Evidence from 27 Developing Countries," Journal of Economics and Political Economy, KSP Journals, vol. 2(1), pages 69-91, March.

    More about this item

    Keywords

    fiscal transparency; political polarization; fiscal policy; budget deficits; political budget cycles; electoral policy cycles;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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