When do more selfish politicians manipulate less, not more?

Xue Wang, Frank Bohn and Francisco Veiga

European Journal of Political Economy, 2023, vol. 77, issue C

Abstract: We model the political manipulation of deficits in a political budget cycle model. Assuming that a share of voters suffers from debt illusion the incumbent can increase her re-election chances by expanding government spending. However, the optimal manipulation may exceed the amount necessary to maximize re-election chances (over-manipulation) if the deficit is not very costly (low repayment obligation). Then, more selfish politicians (higher ego rents and, therefore, increased re-election motivation) reduce the over-manipulation. Conversely, “excessive” spending may wrongly be interpreted as opportunistic government manipulation. Theoretical results are supported empirically, with very robust evidence in a sample of 87 democracies.

Keywords: Political budget cycles; Debt illusion; Ego rent; Deficit; Fiscal policy; Political economy (search for similar items in EconPapers)
JEL-codes: D72 E62 H62 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:77:y:2023:i:c:s0176268022001239

DOI: 10.1016/j.ejpoleco.2022.102320

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