Do Elections Affect the Composition of Fiscal Policy?

Margarita Katsimi and Vassilis Sarantides

No 2908, CESifo Working Paper Series from CESifo

Abstract: This paper investigates the impact of elections on the level and composition of fiscal instruments using a sample of 19 high-income OECD countries that can be characterized as developed, established democracies during the period 1972-1999. We find that elections shift public spending towards current and away from capital expenditures. Moreover, although we find no evidence for an electoral cycle for government deficit and expenditures, we do find a negative effect of elections on revenue. Our results indicate that the fall in revenue in election periods is attributed to a fall in direct taxation. The decomposition of our electoral dummy suggests that fiscal manipulation seems to be concentrated shortly before the elections. Finally, when we distinguish among predetermined and endogenous elections we find that the above results apply only for the predetermined electoral periods while endogenous elections seem to increase the budget deficit and to leave the composition of fiscal policy unaffected.

Keywords: political budget cycles; elections; composition of fiscal policy; quality of public expenditure (search for similar items in EconPapers)
JEL-codes: D72 E62 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2908

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