Political budget cycles

Lamar Crombach, Frank Bohn and Jan-Egbert Sturm

Chapter 73 in Elgar Encyclopedia of Public Choice, 2025, pp 523-528 from Edward Elgar Publishing

Abstract: This chapter examines the evolution of political budget cycle (PBC) models from Rogoff's 1990 signalling model to more advanced frameworks that incorporate moral hazard and uninformed voters. It critiques third-generation models such as Shi and Svensson (2006) for their conceptual inconsistencies, in particular with respect to equilibrium implications (information extraction by uninformed voters and ineffectiveness of economic manipulation). The discussion moves on to fourth-generation models that incorporate, for example, theories of rational inattention, fiscal illusion and incumbency advantage. We show how these factors influence voters’ perceptions of fiscal manipulation. Finally, we highlight the need to understand how deficit-underestimating voters shape political behaviour and the implications for empirical research on PBCs.

Keywords: Political Budget Cycle; Fiscal Manipulation; Information Asymmetry; Voter Competence; Rational Inattention (search for similar items in EconPapers)
Date: 2025
ISBN: 9781802207743
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