Fiscal policy and politicians’ term length

Davide Cipullo (), Federico Franzoni () and Jonas Klarin ()
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Davide Cipullo: Università Cattolica del Sacro Cuore & CESifo & CIFREL & Uppsala Centre for Fiscal Studies
Federico Franzoni: Universitat de Barcelona & CIFREL & IEB
Jonas Klarin: Centre for Business and Policy Research (SNS) & Uppsala Centre for Fiscal Studies

No 2025/13, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: This paper investigates the causal effect of the term length of political executives on economic policy outcomes. To establish causality, we exploit the staggered adoption of four-year terms for governors across US states, using data for the period 1937–2008. We find that increasing governors’ tenure in office from two years to four years reduced state expenditures and revenues by approximately 0.3–0.5 percentage points of GDP. The effect on state finances is primarily driven by a reduction of current spending and grants from the federal government, and it is concentrated in states where the incumbent governor expects fierce competition in the next election. Lastly, we discuss the implications of longer terms for macroeconomic stabilization, political budget cycles, and intergovernamental resource allocation.

Keywords: Term Length; US States Finance; Political selection; Electoral incentives; Political accountability (search for similar items in EconPapers)
JEL-codes: D72 H11 H72 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2025
New Economics Papers: this item is included in nep-pol
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