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To Be or Not To Be in Office Again: Political Business Cycles with Local Governments

Author

Listed:
  • Rui Nuno Baleiras

    (Universidade Nova de Lisboa-Portugal)

  • José da Silva Costa

    (Universidade do Porto-Portugal)

Abstract

Most opportunistic-type models of political business cycles tend to posit a given objective for incumbents: maximisation of re-election chances. Though taking an opportunistic view too, we suggest a new explanation for a fiscal policy cycle: the incumbent’s concern with her own welfare in cases of victory and defeat. This rationale addresses local policy-making in particular. An equilibrium perfect-foresight model is designed which totally dispenses with any form of irrationality (namely, on the part of voters) or the common objective functions (re- election chances). Being well grounded in basic microeconomic theory (welfare maximisation by the individual agent), our model provides another foundation for the emergence of political business cycles at the local level. The empirical plausibility of theoretical predictions is then tested on Portuguese municipal data. The estimation of an error- components econometric framework finds evidence in favour of the proposed explanation during the period 1986 to 1993, and enlightens the role played by several politico-economic determinants of local governments’ investment outlays, such as electoral calendar, re- candidacy decisions, political cohesion and intergovernmental capital transfers.

Suggested Citation

  • Rui Nuno Baleiras & José da Silva Costa, 2003. "To Be or Not To Be in Office Again: Political Business Cycles with Local Governments," Public Economics 0302009, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwppe:0302009
    Note: Type of Document - Adobe pdf; prepared on PC; to print on HP compatible; pages: 28; figures: included. The final version of this working paper was accepted for publication on January 2003 by the European Journal of Political Economy.
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/pe/papers/0302/0302009.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    local public finance; public choice; political business cycle; elections; Portugal;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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