Dynamics of Political Budget Cycle

Ganesh Manjhi () and Meeta Mehra ()

Working Papers from National Institute of Public Finance and Policy

Abstract: Using the method of optimal control, when an incumbent politician derives utility from voting support and dis-utility from budgetary deficit, the equilibrium time paths of both voting support and budgetary deficit are characterized in a finite time horizon under complete information. The incumbent politician may be an opportunist, in that she/ he is interested in garnering votes for herself/ himself, and manipulates budgetary deficit to achieve this, or else she/ he may be partisan, that is, characterized by heterogeneous preferences, reflecting preferences for specific economic policies. The citizen-voters vote for the opportunist as well as the partisan incumbent. However, they reject the same when there is a sufficiently strong anti-incumbency in the opportunist case. The level of voting support obtained in case of both opportunist and partisan is found to be positive and rising over time, but running the budgetary deficit will be costlier for the economy in the former case than the latter. That is, per unit votes garnered by raising the budgetary deficit as compared to the benchmark deficit are lower when the incumbent is an opportunist than when she/ he is partisan.

Keywords: Opportunist Incumbent; Partisan Incumbent; Citizen Voters; Budgetary Deficit; Political Economy; Political Budget Cycles; Fiscal Policy; Anti-incumbency (search for similar items in EconPapers)
JEL-codes: D72 P16 P35 (search for similar items in EconPapers)
Pages: 40
Date: 2016-02
New Economics Papers: this item is included in nep-cdm and nep-pol
Note: Working Paper 163, 2016
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http://www.nipfp.org.in/media/medialibrary/2016/02/WP_2016_163.pdf (application/pdf)

Related works:
Journal Article: Dynamics of Political Budget Cycle (2019)
Working Paper: Dynamics of Political Budget Cycle (2016)
Working Paper: Dynamics of Political Budget Cycle (2015)
Working Paper: Dynamics of Political Budget Cycle
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