1. Conditional Political Budget Cycles: A Reconsideration of the Role of Economic Development
- Author
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Kyriacou, Andreas P., Okabe, Tomohito, Roca-Sagalés, Oriol, and Institute of Economic Research, Hitotsubashi University
- Subjects
conditional effect ,time preference ,Political budget cycles ,economic development - Abstract
We revisit work that has indicated that the presence and strength of Political Budget Cycles depends on a range of conditioning factors. We focus on the mediating effect of economic development. Our results, based on a sample of up to 67 developing and developed countries over the period 1995 to 2016, indicate that budget cycles emerge in countries with a GDP per capita below a threshold ranging from 21,000 to 25,000 U.S. dollars. To explain this we suggest that GDP per capita may be capturing for the effect of time preference. Specifically, in relatively poorer countries, high discount rates will lead voters to value immediate consumption over the future costs from fiscally irresponsible policies. This goes beyond previous explanations of budget cycles based on voters with short memories who underestimate the costs of expansionary policies, voters with little experience with democracy or voters who are poorly informed about the competence or policy preferences of political candidates., The authors acknowledge financial assistance from projects 2017SGR0558, 2017SGR1301 (Generalitat de Catalunya), project ECO2016-75623-R (Ministerio de Economía y Competitividad), the Instituto de Estudios Fiscales (Madrid), KAKENHI (Grants-in-Aid for Scientific Research) project 16K17130 “Theoretical Study on Political Economy for Public Infrastructure and Vertical Fiscal Transfer” and Institute of Economic Research (Hitotsubashi University) / 2018 Joint Usage and Research Center Program “Institutional Differences in Political Budget Cycle”.
- Published
- 2020