EXPLAINING BUDGETARY INDISCIPLINE: EVIDENCE FROM SPANISH MUNICIPALITIES

Ignacio Lago () and Santiago Lago-Peñas

Working Papers from Instituto de Estudios Fiscales

Abstract: . The search for political support leads ultimately to upward deviations from forecasted public deficits when i) budget procedures are soft, ii) breaking promises made on higher expenditures and the lowering of taxes is costly in political terms, and iii) ex-post control by voters and political opposition is imperfect. This hypothesis is tested using a data set from Spanish municipalities during the period 1985-1995. Econometric estimates demonstrate that single-party majority incumbents are less prone to change forecasted budgets. While their forecasted deficits tend to be higher, they have lower actual deficits, which may be interpreted as the consequence of a higher consistency in the budgetary process. Secondly, upward deviations in deficit tend to rise in election years. While forecasted deficits are not different in election years, actual deficits are. Moreover, elections cause systematic downward deviations in revenues. On the contrary, the incumbent’s ideology is not relevant when explaining deviations in deficit.

Keywords: Budget deficits; local governments; budget procedures; electoral promises. (search for similar items in EconPapers)
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Working Paper: Explaining budgetary indiscipline: evidence from spanish municipalities (2004)
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