Making rules credible: Divided government and political budget cycles

Jorge Streb () and Gustavo F. Torrens

No 395, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: Political budget cycles (PBCs) result from the credibility problems that office-motivated incumbents face under asymmetric information, due to their temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit debt, crucial for aggregate PBCs to take place. Since the budget process under separation of powers typically requires that the legislature authorize new debt, divided government can make these fisscal rules credible. Commitment is undermined either by unified government or by imperfect compliance with the budget law. When divided government affects efficiency, voters must trade off electoral distortions and government competence.

Keywords: political budget cycles; discretion; unified government; rules; credibility; separation of powers; divided government (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-04
New Economics Papers: this item is included in nep-cdm, nep-cta, nep-pbe and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://www.ucema.edu.ar/publicaciones/download/documentos/395.pdf (application/pdf)
https://www.ucema.edu.ar/publicaciones/download/documentos/395_appendix.pdf Appendix to final version accepted for publication in Public Choice. (application/pdf)

Related works:
Journal Article: Making rules credible: divided government and political budget cycles (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cem:doctra:395

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