Do Expected Downturns Kill Political Budget Cycles?

Jan-Egbert Sturm and Frank Bohn

No 20-481, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: The political budget cycle (PBC) literature argues that governments expand de cits in election years. However, what happens when an economic downturn is expected? Will the government allow the de cit to expand even further, or will it resort to spending cuts and tax increases? When voters expect less than full automatic stabilization, our model shows that opportunistic government behavior leads to smaller de cits, thereby responding procyclically to expected downturns. Panel data evidence for 74 democracies covering the period 2000-2016 robustly supports the theoretical procyclicality prediction. Moreover, expected downturns remain signi cant when other context-conditional PBC e ects are included in the empirical analysis.

Keywords: political budget cycles; elections; growth expectations; economic downturns; precautionary voters; automatic stabilization; fiscal deficits (search for similar items in EconPapers)
JEL-codes: D72 E32 E62 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2020-06
New Economics Papers: this item is included in nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.3929/ethz-b-000421602 (application/pdf)

Related works:
Journal Article: Do expected downturns kill political budget cycles? (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:20-481

Access Statistics for this paper

More papers in KOF Working papers from KOF Swiss Economic Institute, ETH Zurich Contact information at EDIRC.
Bibliographic data for series maintained by ().