Working Paper: NBER ID: w11862
Authors: Adi Brender; Allan Drazen
Abstract: Conventional wisdom is that good economic conditions or expansionary fiscal policy help incumbents get re-elected, but this has not been tested in a large cross-section of countries. We test these arguments in a sample of 74 countries over the period 1960-2003. We find no evidence that deficits help reelection in any group of countries -- developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with different levels of democracy. In developed countries, especially old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar negative electoral effects of deficits in the earlier years of an incumbent's term in office. Higher growth rates of real GDP per-capita raise the probability of reelection only in the less developed countries and in new democracies, but voters are affected by growth over the leader's term in office rather than in the election year itself. Low inflation is rewarded by voters only in the developed countries. The effects we find are not only statistically significant, but also quite substantial quantitatively. We also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies.
Keywords: budget deficits; economic growth; reelection prospects; political business cycles
JEL Codes: D72; E62; H62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased deficits during an election year (H62) | lower probability of reelection (D72) |
| persistent budget deficits throughout an incumbent's term (H62) | lower probability of reelection (D72) |
| change in the deficit-to-GDP ratio over the term (H68) | increase in reelection chances (D72) |
| GDP growth (O49) | increase in reelection chances in less developed countries (D72) |
| GDP growth (O49) | no significant effect on reelection chances in developed countries (D72) |