 Dynamics of Political Budget CycleGanesh Manjhi () and Meeta Mehra () Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2019, vol. 5, issue 1, No 6, 135-158 Abstract: Abstract The strategic manipulation of fiscal policy in the context of winning elections is a hotly debated issue in economics and political economy. This paper is a theoretical analysis of the manipulation of fiscal policy by an electorally motivated incumbent politician who derives utility from voting support and dis-utility from primary deficit. The incumbent could be one of the following two types: opportunistic or partisan. Using the method of optimal control, the paper derives the equilibrium time paths of both voting support and primary deficit by the incumbent in a dynamic model of finite time horizon under complete information. The level of voting support obtained in case of both types of incumbents is found to be positive and rising over time. Thus, the opportunistic and partisan budgetary cycles follow a similar time pattern, although the cyclicality in case of former is more pronounced than in case of latter in the period closer to the election year. Besides, an opportunistic incumbent is more likely to face rejection when there is sufficiently strong anti-incumbency. Thus, in case of anti-incumbency with opportunism, primary deficit and voting support fall over time. An opportunistic incumbent is also likely to find it costlier to run a primary deficit higher than a specified threshold level than a partisan one. This implies that per unit votes garnered by raising the primary deficit in excess of the threshold level are lower when the incumbent is opportunistic than when she/he is partisan. Numerical simulations corroborate these analytical results. Keywords: Opportunistic incumbent; Partisan incumbent; Primary deficit; Voting support; Political budget cycles; Anti-incumbency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:italej:v:5:y:2019:i:1:d:10.1007_s40797-019-00084-1 Ordering information: This journal article can be ordered from DOI: 10.1007/s40797-019-00084-1 Access Statistics for this article Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti is currently edited by Roberto Cellini More articles in Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti from Springer, Società Italiana degli Economisti (Italian Economic Association) Contact information at EDIRC. |
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