Ignorance isn’t bliss: Uninformed voters drive budget cycles

Jan Janků () and Jan Libich

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: The paper shows that blissful ignorance does not apply to fiscal policy. In countries with insufficiently informed voters, politicians attempt to ‘buy’ votes by substantially increasing government expenditures in election years and tightening the belt post election. This generates costly budget cycles and unnecessary macroeconomic fluctuations. Unlike much of the earlier literature that found this effect only in low income countries or new democracies, we demonstrate that it has occurred in many prosperous countries with an established political system. In particular, constructing an Informed-voter (INFOVOT) index, we show that only the top third of OECD countries with well-informed voters does not experience political budget cycles. In contrast, the bottom third of OECD countries with poorly-informed voters see a deterioration of the budget balance by 1% of GDP on average in election years, which represents an increase of more than 25% relative to their usual budget deficits. Interestingly, for the intermediate group of countries with moderately-informed voters, for example Austria, France, Germany, Japan, Luxembourg, the U.K. and the U.S., election deficit hikes (of 0.75% of GDP) are observed during the 1995-2008 period only, but not since. We discuss why their budget cycles may have disappeared after the Global financial crisis, unlike in countries with poorly-informed voters, drawing on the ‘rational inattention’ literature. We also offer some policy recommendations that could improve the voters’ incentives to acquire and process fiscal policy information, and thus avoid an ‘ignorance trap’.

Keywords: Political Budget Cycle; Uninformed Voters; Elections; Rational Inattention; Generalized Method of Moments (search for similar items in EconPapers)
JEL-codes: D72 E62 H62 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2018-01
New Economics Papers: this item is included in nep-mac and nep-pol
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cama.crawford.anu.edu.au/sites/default/fil ... 018_janku_libich.pdf (application/pdf)

Related works:
Journal Article: Ignorance isn't bliss: Uninformed voters drive budget cycles (2019)
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:een:camaaa:2018-02

Access Statistics for this paper

More papers in CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University Contact information at EDIRC.
Bibliographic data for series maintained by Cama Admin ().