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Political budget cycles in federal systems: The case of India

Author

Listed:
  • Sourav Das

    (University of Kassel)

  • Patrick Hufschmidt

    (Technical University of Dortmund)

  • Fabian Mankat

    (University of Kassel)

  • Konstantinos Theocharopoulos

    (University of Siegen)

Abstract

This paper examines Political Budget Cycles in federal systems, focusing on how a central incumbent allocates discretionary transfers across states in response to electoral incentives. We develop a theoretical model predicting that average discretionary transfers increase during federal election periods. While swing states consistently receive higher discretionary transfers due to their electoral competitiveness, the election-period increase is larger for non-swing states. Using a panel dataset of Indian states from 2006 to 2022, we find evidence consistent with the theoretical model: discretionary transfers are significantly higher in federal election periods, swing states receive more discretionary transfers in non-election periods, and the election-period increase in discretionary transfers is more pronounced for non-swing states.

Suggested Citation

  • Sourav Das & Patrick Hufschmidt & Fabian Mankat & Konstantinos Theocharopoulos, 2025. "Political budget cycles in federal systems: The case of India," MAGKS Papers on Economics 202518, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:202518
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    References listed on IDEAS

    as
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    3. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    4. Acharya, Avidit & Roemer, John E. & Somanathan, Rohini, 2015. "Caste, corruption and political competition in India," Research in Economics, Elsevier, vol. 69(3), pages 336-352.
    5. J. Stephen Ferris & Bharatee Bhusana Dash, 2019. "Expenditure visibility and voter memory: a compositional approach to the political budget cycle in Indian states, 1959–2012," Economics of Governance, Springer, vol. 20(2), pages 129-157, June.
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    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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