Fiscal policy cycles and the exchange regime in developing countries
Ludger Schuknecht
No ERAD-97-04, WTO Staff Working Papers from World Trade Organization (WTO), Economic Research and Statistics Division
Abstract:
The paper studies empirically fiscal policies around elections in 25 developing countries as affected by the exchange regime. It is argued that countries with flexible exchange regimes are less likely to engage in expansionary fiscal policies before elections because such policies can result in devaluations and inflation which affects government popularity adversely. The empirical results show that governments indeed try to improve their re-election prospects with the help of expansionary fiscal policies only in countries with fixed exchange rates and adequate reserve levels. For some countries, this raises doubts about the usefulness of fixed exchange rates for stabilizing the macro economy, unless reforms of the institutional framework reduce the scope for election-oriented fiscal expansion.
Keywords: Elections; political business cycles; fiscal policies; deficits; developing countries (search for similar items in EconPapers)
JEL-codes: E62 F41 H62 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (8)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wtowps:erad9704
DOI: 10.30875/a61e7f78-en
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