Political Budget Cycles Revisited, the Case for Social Capital

Omiros Kouvavas

MPRA Paper from University Library of Munich, Germany

Abstract: Recent literature on Political Budget Cycles has provided appealing evidence that their existence is conditional to country specific characteristics. In this paper we hypothesize that the level of social capital prevailing in a country might be an underlying fundamental reason that might be driving these results. We provide strong evidence that political budget cycles are only present in low social capital countries by utilizing a large panel data set for 63 democratic countries. We also show that the political budget cycles occur both in developing and developed countries under low social capital. Simultaneously, our results are robust under most other conditional effects considered by the literature. Finally, we also propose a theoretical model of conditional capital budget cycles by adapting a moral hazard model to account for different distributions of social capital.

Keywords: Political Budget Cycles; Political Processes; Trust; Social Capital (search for similar items in EconPapers)
JEL-codes: D72 E02 E32 E62 H60 (search for similar items in EconPapers)
Date: 2013-06-20, Revised 2013-09-15
New Economics Papers: this item is included in nep-cdm, nep-fdg, nep-mac, nep-pol and nep-soc
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:57504

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