Local Political Budget Cycles in a Federation: Evidence from West German Cities

Marina Furdas (), Katerina Homolkova () and Krisztina Kis-Katos
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Marina Furdas: Humboldt University Berlin
Katerina Homolkova: University of Kiel

No 8798, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes the occurrence of political budget cycles in 604 West German cities between 1975 and 2007. Due to the idiosyncratic timing of state and local elections, the budgetary changes before elections at two tiers of the federalist government can be separately estimated and can also be distinguished from common time effects. Both local and state elections result in pre-election manipulation of the local finances of moderate size. Before both types of elections, we observe an increase in building investments, accompanied by increasing intergovernmental grants for investment purposes but also a halt in the increase of local tax rates. By contrast, elections at the two tiers of the government affect the size of the current budget differently: current revenues and expenditures decrease before local but increase before state elections, suggesting a difference in the tightness of the local budget constraint. The extent of these political budget cycles is more pronounced in municipalities that are politically aligned with the state governments and are politically more contested.

Keywords: political budget cycles; German cities; municipal finances; local and state elections (search for similar items in EconPapers)
JEL-codes: D72 H71 H72 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2015-01
New Economics Papers: this item is included in nep-cdm, nep-pbe, nep-pol and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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