Abstract
Theories of political budget cycles have been contested because scholars find that incumbents can manipulate deficits in the pre-election period only if fiscal transparency is low. I argue that these findings do not generally rule out the possibility of fiscal electioneering. Governments may increase spending on highly visible policies. The composition of the budget serves as a second-best strategy. It increases political support without straining the budget balance. An empirical analysis of the West German states reveals alternative electoral budget strategies and ultimately point to the importance of analyzing how governments choose between alternative fiscal instruments.
Article PDF
Similar content being viewed by others
References
Achen, C. H. (2000). Why lagged dependent variables can suppress the explanatory power of other independent variables. Polmeth Working Paper.
Akhmedov, A., & Zhuravskaya, E. V. (2004). Opportunistic political cycles, test in a young democracy setting. Quarterly Journal of Economics, 119(4), 1301–1338.
Alesina, A. (1987). Macroeconomic policy in a two-party system as a repeated game. Quarterly Journal of Economics, 102, 651–678.
Alesina, A. (1988). Macroeconomics and politics. In O. Blanchard & S. Fischer (Eds.), NBER macroeconomics and annual. Cambridge: MIT Press.
Alesina, A. (1989). Politics and business cycles in industrial economies. Economic Policy, 5, 55–98.
Alesina, A., & Roubini, N. (1992). Political cycles in OECD economies. Review of Economic Studies, 59, 663–688.
Alesina, A., Cohen, G. D., & Roubini, N. (1992). Macroeconomic policy and elections in OECD democracies. Economics and Politics, 4, 1–30.
Alesina, A., Roubini, N., & Cohen, G. D. (1997). Political cycles and the macroeconomy. Cambridge: MIT Press.
Alesina, A., Perotti, R., & Tavares, J. (1998). The political economy of fiscal adjustments. Brookings Papers in Economic Activity.
Alt, J. E., & Lassen, D. (2006a). Transparency, political polarization, and political budget cycles in OECD countries. American Journal of Political Science, 50(3), 530–550.
Alt, J. E., & Lassen, D. (2006b). Fiscal transparency, political parties, and debt in OECD countries. European Economic Review, 50, 1403–1439.
Andrikopoulos, A., Loizides, I., & Prodromidis, K. (2004). Fiscal policy and political business cycles in the EU. European Journal of Political Economy, 20, 125–152.
Beck, N., & Katz, J. (1995). What to do, and not to do with time series cross-section data. American Political Science Review, 89(3), 634–647.
Belke, A. (2000). Partisan political business cycles in the German labour market? Empirical tests in the light of the Lucas-critique. Public Choice, 104, 225–283.
Belke, A., & Schneider, F. (2006). Privatization in Austria: some theoretical reasons and performance measures. In M. Köthenburger, H.-W. Sinn & J. Whalley (Eds.), CESifo conference volume. Privatization experiences in the EU (pp. 89–115). Cambridge: MIT Press.
Belke, A., Baumgärtner, F., Setzer, R., & Schneider, F. (2007). The different extent of privatization proceeds in EU Countries: a preliminary explanation using a Public Choice approach. Finanzarchiv, 63(2), 211–243.
Ben-Porath, Y. S. (1975). The years of plenty and the years of famine—a political business cycle? Kyklos, 28, 400–403.
Berger, H., & Holler, A. (2007). What determines fiscal policy? Evidence from German states. CESIFO Working Paper No. 2062.
Berger, H., & Woitek, U. (1997a). Searching for political business cycles in Germany. Public Choice, 91, 179–197.
Berger, H., & Woitek, U. (1997b). How opportunistic are partisan German central bankers: evidence on the Vaubel hypothesis. European Journal of Political Economy, 13, 807–821.
Berger, H., & Woitek, U. (2001). The German political business cycle: money demand rather than monetary policy. European Journal of Political Economy, 17(3), 609–631.
Bernhard, W. T., Broz, L. J., & Clark, W. R. (2002). The political economy of monetary institutions. Cambridge: MIT Press.
Blais, A., & Nadeau, R. (1992). The electoral budget cycle. Public Choice, 74, 389–403.
Boix, C. (1998). Political parties, growth and equality: conservative and social democratic economic strategies in the world economy. Cambridge: Cambridge University Press.
Boix, C. (2000). Partisan governments, the international economy, and macroeconomic policies in advanced nations, 1960–1993. World Politics, 53, 38–73.
Brender, A. (2003). The effect of fiscal performance on local government election results in Israel: 1989–1998. Journal of Public Economics, 87, 2187–2205.
Brender, A., & Drazen, A. (2005). Political budget cycles in new versus established democracies. Journal of Monetary Economics, 52, 1271–1295.
Broz, L. J. (2002). Political system transparency and monetary commitment regimes. International Organization, 56, 861–887.
Broz, L. J., & Frieden, J. (2001). The political economy of international monetary relations. Annual Review of Political Science, 4, 317–343.
Buti, M., & van der Noord, P. (2003). Discretionary fiscal policy and elections: the experience of the early years of EMU. OECD Economics Department Working Paper No. 351.
Clark, W. R. (2002a). Capitalism not globalism: capital mobility, and political control of the economy. Ann Arbor: University of Michigan Press.
Clark, W. R. (2002b). Partisan and electoral motivations and the choice of monetary institutions under fully mobile capital. International Organization, 56, 725–749.
Clark, W. R., & Hallerberg, M. (2000). Mobile capital, domestic institutions, and electorally-induced monetary and fiscal policy. American Political Science Review, 94, 323–346.
Clark, W. R., Reichert, U. N., Lomas, S. L., & Parker, K. L. (1998). International and domestic constraints on political business cycles in OECD economies. International Organization, 52(1), 87–120.
Cusack, T. R. (1997). Partisan politics and public finance: changes in public spending in industrialized democracies, 1955–1989. Public Choice, 91, 375–395.
De Haan, J., & Sturm, J.-E. (1994). Political and institutional determinants of fiscal policy in the European Community. Public Choice, 80, 157–172.
Drazen, A. (2000). The political business cycle after 25 years. NBER Macroeconomics Annual, 15, 75–117.
Drazen, A., & Eslava, M. (2005). Electoral manipulation via expenditure composition: theory and evidence. NBER Working Paper No. W11085.
Drazen, A., & Eslava, M. (2006). Pork barrel cycles. NBER Working Paper No. 12190.
Fair, R. C. (1978). The effect of economic events on votes for president. Review of Economics and Statistics, 60, 159–172.
Franzese, R. J. (1999). Partially independent central banks, political responsive governments, and inflation. American Journal of Political Science, 43, 681–706.
Franzese, R. J. (2000). Electoral and partisan manipulation of public debt in developed democracies, 1956–1990. In R. Strauch & J. Von (Eds.), Institutions, politics and fiscal policy (pp. 61–83). Dordrecht: Kluwer Academic Press.
Franzese, R. J. (2002a). Electoral and partisan cycles in economic policies and outcomes. Annual Review of Political Science, 5, 369–421.
Franzese, R. J. (2002b). Macroeconomic policies of developed countries. Cambridge: Cambridge University Press.
Franzese, R. J. (2003). Multiple hands on the wheel: empirically modeling partial delegation and shared policy control in the open and institutionalized economy. Political Analysis, 11(4), 445–474.
Galli, E., & Rossi, S. (2002). Political budget cycles: the case of the Western German Länder. Public Choice, 110, 283–303.
Garrett, G. (1998). Partisan politics in the global economy. Cambridge: Cambridge University Press.
Greene, W. H. (2003). Econometric analysis. Englewood Cliffs: Prentice-Hall.
Grier, K. (2008). Presidential elections and real GDP growth in the USA. Public Choice, 135(3), 337–352.
Gschwend, T., & Norpoth, H. (2005). Prognosemodell auf dem Prüfstand: Die Bundestagswahl 2005. Politische Vierteljahresschrift, 46(4), 682–688.
Hausman, J. A., & Taylor, W. E. (1981). Panel data and unobservable individual effects. Econometrica, 49, 1377–1398.
Hibbs, D. A. (1977). Political parties and macroeconomic policy. American Political Science Review, 23, 1467–1488.
Hibbs, D. A. (1987). The American political economy: macroeconomics and electoral politics in the United States. Cambridge: Harvard University Press.
International Monetary Fund (IMF) (2003). Germany. Report on observance of standards and codes—Fiscal transparency. IMF Country Report No. 03/286.
Jochimsen, B., & Nuscheler, R. (2005). The political economy of German Länder deficits. Unpublished Working Paper.
John, P., & Ward, H. (2001). Political manipulation in a majoritarian democracy: central government targeting of public funds to English subnational government. British Journal of Political Science, 3(3), 308–339.
Jonsson, G. (1995). Institutions and macroeconomic outcomes—the empirical evidence. Swedish Economic Policy Review, 2(1), 181–212.
Keech, W., & Pak, K. (1989). Electoral cycles and budgetary growth in veteran’s benefit programs. American Journal of Political Science, 33, 901–911.
Kopits, G., & Craig, J. (1998). Transparency in government operations. IMF Occasional Paper No. 158.
Kramer, G. H. (1971). Short-term fluctuations in U.S. voting behavior, 1986–1964. American Political Science Review, 65, 131–143.
Lindbeck, A. (1976). Stabilization policy in open economies with endogenous politicians. American Economic Review Papers and Proceedings, 66, 1–19.
Lohmann, S. (1992). Optimal commitment in monetary policy: credibility versus flexibility. American Economic Review, 82, 273–286.
Lohmann, S. (1997). Partisan control of the money supply and decentralized appointment powers. European Journal of Political Economy, 13, 225–246.
Midtbo, T. (1998). The open politiconomy: a dynamic analysis of social democratic popularity and economic policies in Scandinavia. British Journal of Political Science, 28(1), 93–112.
Mink, M., & de Haan, J. (2005). Has the Stability and Growth Pact impeded political budget cycles in the European Union? CESIFO Working Paper No. 1532.
Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49, 1417–1426.
Nordhaus, W. D. (1975). The political business cycle. Review of Economic Studies, 42, 169–190.
Oatley, T. H. (1999). Monetary politics. Exchange-rate cooperation in the European Union. Ann Arbor: University of Michigan Press.
Obstfeld, M., & Rogoff, K. (1996). Foundations of international macroeconomics. Cambridge: MIT Press.
Peltzman, S. (1992). Voters as fiscal conservatives. Quarterly Journal of Economics, 107, 261–327.
Persson, T., & Tabellini, G. (1990). Macroeconomic policy, credibility and politics. London: Harwood.
Persson, T., & Tabellini, G. (2002). Political economics. Explaining economic policy. Cambridge: MIT Press.
Persson, T., & Tabellini, G. (2003a). The economic effects of constitutions. Cambridge: MIT Press.
Persson, T., & Tabellini, G. (2003b). Do electoral cycles differ across political systems? IGIER Working Paper No. 232.
Plümper, T., & Troeger, V. E. (2007). Efficient estimation of rarely changing variables in panel data with unit fixed effects. Political Analysis, 15(2), 124–139.
Price, S. (1998). Comment on “The politics of the political business cycle”. British Journal of Political Science, 28, 201–210.
Rogoff, K. (1990). Equilibrium political budget cycles. American Economic Review, 80, 21–36.
Rogoff, K., & Sibert, A. (1988). Election and macroeconomic cycles. Review of Economic Studies, 55, 1–16.
Schneider, C. J. (2007). Politischer Opportunismus und Haushaltsdefizite in den westdeutschen Bundesländern. Politische Vierteljahresschrift, 48(2), 221–242.
Schultz, K. A. (1995). The politics of the political business cycle. British Journal of Political Science, 25(1), 79–99.
Shi, M., & Svensson, J. (2000). Political business cycles in developed and developing countries. World Bank Working Paper.
Shi, M., & Svensson, J. (2002). Conditional political budget cycles. Manuscript, IIES, Stockholm.
Shi, M., & Svensson, J. (2006). Political business cycles: do they differ across countries and why? Journal of Public Economics, 90(8–9), 1367–1389.
Seitz, H. (2000). Fiscal policy, deficits, and politics of subnational government. The case of the German Länder. Public Choice, 102, 183–218.
Simmons, B. (1996). Rulers of the game: central bank independence during interwar years. International Organization, 50(3), 407–443.
Sutter, M. (2003). The political economy of fiscal policy: an experimental study on the strategic use of deficits. Public Choice, 116, 313–332.
Tufte, E. R. (1975). Determinants of the outcomes of midterm congressional elections. American Political Science Review, 69, 812–826.
Tufte, E. R. (1978). Political control of the economy. Princeton: Princeton University Press.
Vaubel, R. (1997). The bureaucratic and partisan behaviour of independent central banks: German and international evidence. European Journal of Political Economy, 13(2), 201–224.
Veiga, L. G., & Veiga, F. J. (2007). Political business cycles at the municipal level. Public Choice, 131, 45–65.
Von Hagen, J. (1992). Budgeting procedures and fiscal performance in the European Community. EEC Economic Papers 96.
Von Hagen, J. (2003). Fiscal discipline and growth in Euroland. Experiences with the Stability and Growth Pact. ZEI Working Paper No. B062003.
Way, C. (2000). Central banks, partisan politics, and macroeconomic outcomes. Comparative Political Studies, 33(2), 196–224.
Wright, G. (1974). The political economy of New Deal spending: an econometric analysis. Review of Economic Statistics, 56, 30–38.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
About this article
Cite this article
Schneider, C.J. Fighting with one hand tied behind the back: political budget cycles in the West German states. Public Choice 142, 125–150 (2010). https://doi.org/10.1007/s11127-009-9480-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11127-009-9480-5