Revenue decentralization, central oversight and the political budget cycle: Evidence from Israel

Thushyanthan Baskaran, Sebastian Blesse, Adi Brender () and Yaniv Reingewertz

No 15-046, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper examines whether revenue decentralization and direct external financial supervision affect the incidence and strength of political budget cycles, using a panel of Israeli municipalities during the period 1999-2009. We find that high dependence on central government transfers - as reflected in a low share of locally raised revenues in the municipality's budget - exacerbates political budget cycles, while tight monitoring - exercised through central government appointment of external accountants to debt accumulating municipalities - eliminates them. These results suggest that political budget cycles can result from fiscal institutions that create soft budget constraints: that is, where incumbents and rational voters can expect that the costs of pre-election expansions will be partly covered later by the central government.

Keywords: political budget cycles; soft budget constraint; local governments; decentralization (search for similar items in EconPapers)
JEL-codes: D72 E62 H72 H74 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cdm and nep-mac
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Revenue decentralization, central oversight and the political budget cycle: Evidence from Israel (2016)
Working Paper: Revenue decentralization, central oversight and the political budget cycle: Evidence from Israel (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:15046

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