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Political business cycles at the municipal level

  • Linda Veiga

    ()

  • Francisco Veiga

    ()

The political article tests for rational political business cycles models on an unexplored and large data set of Portuguese municipalities. This data allows for a clean test of the models due to its high level of detail on expenditure items, an exogenous fixed election schedule and the homogeneity of local governments with respect to policy instruments and institutions. Estimation results clearly reveal the opportunistic behaviour of local governments, that in pre-electoral periods, increase expenditure on items highly visible to the electorate such as roads and street construction, in an effort to signal competence and increase their chances of re-election. JEL classification: H72, D72, D78 Keywords: political business cycles, public finance, local governments

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa04p427.

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Date of creation: Aug 2004
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Handle: RePEc:wiw:wiwrsa:ersa04p427
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  1. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-88, July.
  2. Blais, Andre & Nadeau, Richard, 1992. " The Electoral Budget Cycle," Public Choice, Springer, vol. 74(4), pages 389-403, December.
  3. Besley, Timothy J. & Case, Anne, 2002. "Political Institutions and Policy Choices: Evidence from the United States," CEPR Discussion Papers 3498, C.E.P.R. Discussion Papers.
  4. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies.
  5. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  6. Francisco JosÈ Veiga & Linda GonÁalves Veiga, 2004. "The Determinants of Vote Intentions in Portugal," Public Choice, Springer, vol. 118(3_4), pages 341-364, 03.
  7. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  8. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  9. Francisco Jose Veiga & Linda Goncalves Veiga, 2004. "Popularity functions, partisan effects, and support in Parliament," Economics and Politics, Wiley Blackwell, vol. 16(1), pages 101-115, 03.
  10. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  11. Galli, Emma & Rossi, Stefania P S, 2002. " Political Budget Cycles: The Case of the Western German Lander," Public Choice, Springer, vol. 110(3-4), pages 283-303, March.
  12. Allan Drazen & Marcela Eslava, 2005. "Electoral Manipulation via Expenditure Composition: Theory and Evidence," NBER Working Papers 11085, National Bureau of Economic Research, Inc.
  13. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  14. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  15. Linda Gonçalves Veiga, 2002. "The Political Economy of Local Governments' Expenditures," NIPE Working Papers 8/2002, NIPE - Universidade do Minho.
  16. Alesina, Alberto & Tabellini, Guido, 1988. "Credibility and politics," European Economic Review, Elsevier, vol. 32(2-3), pages 542-550, March.
  17. Rosenberg, Jacob, 1992. " Rationality and the Political Business Cycle: The Case of Local Government," Public Choice, Springer, vol. 73(1), pages 71-81, January.
  18. Baleiras, Rui Nuno & Costa, Jose da Silva, 2001. "To Be or Not To Be in Office Again, That is the Question: Political Business Cycles with Local Governments," FEUNL Working Paper Series wp402, Universidade Nova de Lisboa, Faculdade de Economia.
  19. 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.
  20. Baleiras, Rui Nuno & da Silva Costa, Jose, 2004. "To be or not to be in office again: an empirical test of a local political business cycle rationale," European Journal of Political Economy, Elsevier, vol. 20(3), pages 655-671, September.
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