Do political budget cycles really exist?

Abstract

International audience ; Most recent cross-country studies on election-motivated fiscal policy assume that the data can be pooled. As various tests suggest that our data for some 70 democratic countries for the period 1970-2007 cannot be pooled, we use the Pooled Mean Group (PMG) estimator to test whether political budget cycles (PBCs) exist in our sample. We find that fiscal policy is only affected by upcoming elections in the short run. Our results suggest that the occurrence of a PBC is conditional on the level of development and democracy, government transparency, the country's political system, its membership of a monetary union and its degree of political polarization.