Working Paper: CEPR ID: DP4049
Authors: Adi Brender; Allan Drazen
Abstract: Whereas a political budget cycle was once thought to be a phenomenon of less-developed economies, some recent studies find such a cycle in a large cross-section of both developed and developing countries. We find that this result is driven by the experience of ?new democracies?, where fiscal manipulation may be effective because of lack of experience with electoral politics or lack of information that voters in more established democracies use. The strong budget cycle in those countries accounts for the finding of a budget cycle in larger samples that include these countries. Once these countries are removed from the larger sample, the political budget cycle disappears. Our findings may reconcile two contradictory views of pre-electoral manipulation, one arguing it is a useful instrument to gain voter support and a widespread empirical phenomenon, the other arguing that voters punish rather than reward fiscal manipulation.
Keywords: Fiscal manipulation; New democracy; Political budget cycle
JEL Codes: D72; D78; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| new democracies (P39) | political budget cycle (H61) |
| voter inexperience (K16) | political budget cycle (H61) |
| political budget cycle disappears (H61) | established democracies (P16) |
| informed voters (K16) | less reward for fiscal manipulation (E62) |
| electoral experience (K16) | political cycles in fiscal data (E62) |