Election-Induced Fiscal Policy Cycles in Emerging Market and Developing Economies

Jakob de Haan, Franziska Ohnsorge and Shu Yu

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

Abstract: The widening of fiscal deficits during democratic elections is well established. We examine a broader set of fiscal outcomes around elections for a large set of emerging and developing economies (EMDEs), probe for differences between democracies and non-democracies, and estimate the degree to which fiscal deteriorations are unwound after elections. We show three patterns. First, primary deficits rise statistically significantly during elections, by 0.6 percentage point of GDP. Primary spending, especially on the government wage bill, also rises statistically significantly and indirect tax revenues fall. Second, these deteriorations occur in democracies and non-democracies alike. Third, the deterioration in primary deficits is not unwound after elections and the deterioration in primary spending is partially unwound after the election, mainly through cuts in capital spending. These patterns imply that deficits in EMDEs ratchet up over the course of several election cycles. Over time, this can threaten the sustainability of public finances. Finally, we find that better institutional quality (such as strong fiscal rules) and the presence of an IMF program partly mitigate the impact of elections on fiscal positions.

Keywords: political budget cycles; emerging and developing countries; democracies; autocracies (search for similar items in EconPapers)
JEL-codes: D72 E62 H62 O10 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2024-01
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Related works:
Working Paper: Election-Induced Fiscal Policy Cycles in Emerging Market and Developing Economies (2023)
Working Paper: Election-induced fiscal policy cycles in emerging market and developing economies (2023)
Working Paper: Election-induced fiscal policy cycles in emerging market and developing economies (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2024-01

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