Arbeitspapier
Do expected downturns kill political budget cycles?
The political budget cycle (PBC) literature argues that governments expand deficits in election years. However, what happens when an economic downturn is expected? Will the government allow the deficit to expand even further, or will it resort to spending cuts and tax increases? When voters expect less than full automatic stabilization, our model shows that opportunistic government behavior leads to smaller deficits, thereby responding procyclically to expected downturns. Panel data evidence for 74 democracies covering the period 2000-2016 robustly supports the theoretical procyclicality prediction. Moreover, expected downturns remain significant when other context-conditional PBC effects are included in the empirical analysis.
- Language
-
Englisch
- Bibliographic citation
-
Series: KOF Working Papers ; No. 481
- Classification
-
Wirtschaft
Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
Business Fluctuations; Cycles
Fiscal Policy
- Subject
-
political budget cycles
elections
growth expectations
economic downturns
precautionary voters
automatic stabilization
fiscal deficits
- Event
-
Geistige Schöpfung
- (who)
-
Bohn, Frank
Sturm, Jan-Egbert
- Event
-
Veröffentlichung
- (who)
-
ETH Zurich, KOF Swiss Economic Institute
- (where)
-
Zurich
- (when)
-
2020
- DOI
-
doi:10.3929/ethz-b-000421602
- Handle
- Last update
-
10.03.2025, 11:46 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Bohn, Frank
- Sturm, Jan-Egbert
- ETH Zurich, KOF Swiss Economic Institute
Time of origin
- 2020
Other Objects (12)
Using real-time data to test for political budget cycles
Using real-time data to test for political budget cycles
A New Crisis Mechanism for the Euro Area
No Need to Run Millions of Regressions
Do expected downturns kill political budget cycles?
Media reporting and business cycles: Empirical evidence based on news data
Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia
The information content of capacity utilisation rates for output gap estimates
Explaining IMF lending decisions after the Cold War
Das Personenfreizügigkeitsabkommen Schweiz-EU/EFTA und das Wachstum des BIP pro Kopf in der Schweiz: Bericht zuhanden des Bundesamtes für Migration (BFM)
Inflation in Developing Countries: Does Central Bank Independence Matter?
Prognose der Kostenentwicklung in der obligatorischen Krankenpflegeversicherung (OKP): Für die Jahre 2019 und 2020. Studie im Auftrag des Bundesamtes für Gesundheit (BAG)
Using real-time data to test for political budget cycles
Using real-time data to test for political budget cycles
A New Crisis Mechanism for the Euro Area
No Need to Run Millions of Regressions
Do expected downturns kill political budget cycles?
Media reporting and business cycles: Empirical evidence based on news data
Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia
The information content of capacity utilisation rates for output gap estimates
Explaining IMF lending decisions after the Cold War
Das Personenfreizügigkeitsabkommen Schweiz-EU/EFTA und das Wachstum des BIP pro Kopf in der Schweiz: Bericht zuhanden des Bundesamtes für Migration (BFM)
Inflation in Developing Countries: Does Central Bank Independence Matter?
Prognose der Kostenentwicklung in der obligatorischen Krankenpflegeversicherung (OKP): Für die Jahre 2019 und 2020. Studie im Auftrag des Bundesamtes für Gesundheit (BAG)
Using real-time data to test for political budget cycles
Using real-time data to test for political budget cycles
A New Crisis Mechanism for the Euro Area
No Need to Run Millions of Regressions
Do expected downturns kill political budget cycles?
Media reporting and business cycles: Empirical evidence based on news data
Deregulation, Entry of Foreign Banks and Bank Efficiency in Australia
The information content of capacity utilisation rates for output gap estimates
Explaining IMF lending decisions after the Cold War
Das Personenfreizügigkeitsabkommen Schweiz-EU/EFTA und das Wachstum des BIP pro Kopf in der Schweiz: Bericht zuhanden des Bundesamtes für Migration (BFM)
Inflation in Developing Countries: Does Central Bank Independence Matter?