Political Budget Forecast Cycles

Frank Bohn and Francisco Veiga

No 12/2019, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: By forecasting overly optimistic revenues opportunistic governments can increase spending in order to appear more competent prior to elections. Ex post deficits emerge in election years, thereby producing political forecast cycles - as also found for US states in the empirical literature. In our theoretical moral hazard model we obtain three additional results which are tested with panel data for Portuguese municipalities. The extent of manipulations is reduced when (i) the winning margin is expected to widen; (ii) the incumbent is not re-running; and/or (iii) the share of informed voters (proxied by education) goes up.

Keywords: opportunistic political cycles; political budget cycles; revenue forecasts; deficit; transfers; asymmetric information; political economy. (search for similar items in EconPapers)
JEL-codes: D72 E32 H68 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cdm, nep-for, nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://repositorium.sdum.uminho.pt/bitstream/1822/61687/1/NIPE_WP_12_2019.pdf (application/pdf)

Related works:
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:nip:nipewp:12/2019

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in NIPE Working Papers from NIPE - Universidade do Minho Núcleo de Investigação em Políticas Económicas e Empresariais, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal. Contact information at EDIRC.
Bibliographic data for series maintained by NIPE ().