Mooted signals: economic disturbances and political budget cycles

Marek Hanusch
Additional contact information
Marek Hanusch: The World Bank, http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,menuPK:258649~pagePK:158889~piPK:146815~theSitePK:258644,00.html

Journal of Applied Economics, 2012, vol. 15, 189-212

Abstract: Governments can finance fiscal expansions with debt to appear competent and boost their electoral prospects, resulting in a political budget cycle. This article shows that economic disturbances blur competence signals, dampening political budget cycles. Economic disturbances can be construed at the aggregate level as economic volatility which is a consequence of decisions taken by diverse economic actors. The more actors that are not elected at the national level have an impact on economic performance, the more difficult it will be for voters to disentangle government-specific competence shocks. Fiscal decentralisation increases policy leverage of governing bodies that are not elected at the national level; economic openness affects the number of foreign economic actors that cannot be held locally accountable. These two factors therefore limit voters’ ability to disentangle individual shocks to government competence, dampening strategic borrowing. The predictions receive empirical support from a time series-cross section analysis between 1980 and 2008.

Keywords: political budget cycles; economic volatility; fiscal decentralisation; economic openness (search for similar items in EconPapers)
JEL-codes: D72 D82 E62 (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://ucema.edu.ar/publicaciones/download/volume15/hanusch.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:cem:jaecon:v:15:y:2012:n:2:p:189-212

Access Statistics for this article

Journal of Applied Economics is currently edited by Germán Coloma and Mariana Conte Grand and Jorge M. Streb

More articles in Journal of Applied Economics from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().