Political budget cycles, incumbency advantage, and propaganda

Bohn, Frank

doi:10.1111/ecpo.12122

Cited by 24 publications

(18 citation statements)

References 60 publications

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“…10 This is a different approach to the ones taken in Bohn (2018) and Bohn (2019). In the former, voters are unsophisticated and cannot rationally expect the government manipulation.…”

Section: Deviations From Rational Expectations (Re)mentioning

confidence: 99%

Do expected downturns kill political budget cycles?

Bohn

Sturm

2020

Rev Int Organ

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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.

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“…10 This is a different approach to the ones taken in Bohn (2018) and Bohn (2019). In the former, voters are unsophisticated and cannot rationally expect the government manipulation.…”

Section: Deviations From Rational Expectations (Re)mentioning

confidence: 99%

Do expected downturns kill political budget cycles?

Bohn

Sturm

2020

Rev Int Organ

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“…Aidt (p. 359) [14], concludes that “voters may not be fully informed but they know enough to make rational and informed decisions”, whereas Aidt and Dutta (p. 354) [15] contend that “other groups (the poor and uneducated) … are … unlikely to cast rational … votes”. In Bohn [16], voters can be mislead by the government because it can use its incumbency advantage to manipulate voters’ perceptions of the deficit. In Maloney and Pickering [17], sophisticated voters can distinguish (long-term) trend growth from short-term economic cycles, whereas unsophisticated voters only respond to raw GDP data.…”

Section: Introductionmentioning

confidence: 99%

Political cycles: Beyond rational expectations

Bohn

2018

PLoS ONE

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Motivation and methodExisting rational expectations models cannot satisfactorily explain why political budget manipulations systematically raise re-election chances and only occur in “specific contexts”. This paper offers a theoretical explanation by including unsophisticated voters into an opportunistic political cycle model; unsophisticated voters are unable to take the optimal behaviour of other agents (fully) into account, but may, nonetheless, vaguely suspect government deception.ResultsFirst, rationally expected manipulations are, on average, fruitless in equilibrium. By including unsophisticated voters we can, however, corroborate empirically found electoral effects of political budget manipulations. Second, unsophisticated voters become anxious and suspicious in an intransparent or uncertain world, but the government tries to “outperform” their scepticism by increasing budget manipulations in order to appear more competent and, ultimately, increase re-election chances. It is, therefore, not surprising that political budget cycles are observed in countries suffering from intransparencies such as developing countries or new democracies. Third and in addition, the model presented here predicts that political opportunism produces, unintentionally, a countercyclical policy effect in election years, thereby, for instance, alleviating the typical problem of policy procyclicality in developing countries.Additional contributionThe paper also offers a theoretical explanation for political distortions found in forecasts by US states. Based on overly optimistic revenue forecasts the incumbent state government can conduct expansionary fiscal policies in order to appear more competent prior to an upcoming election. Since the resulting deficit can only be observed afterwards, the government can effectively circumvent a constitutional balanced budget constraint. As a result, there are political forecast and budget cycles in the state. More generally, however, these findings may also apply to European countries where balanced budget constraints are or will be in place (for instance the debt brakes in Switzerland and Germany); similarly, they apply to the supra-national European Fiscal Compact of the European Union.

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“…In addition, Higashijima (2016) found a non-linear result, and was higher in authoritarian governments. Bohn (2018) convincingly attributed PBC cases to in-transparencies. De Haan (2012) and Klomp and De Haan (2012b) found an increase in the fiscal deficit and rising cases of PBC in young democracies, but less in old democracies and none in matured democracies.…”

Section: Empirical Studiesmentioning

confidence: 96%

“…Brender et al (2005) discovered a link between democracy and fiscal discipline, while the years of democracy were a decreasing function of the PBC. Higashijima (2016) and Bohn (2018) found high cases of PBC in new and young democracies. In addition, Higashijima (2016) found a non-linear result, and was higher in authoritarian governments.…”

Section: Empirical Studiesmentioning

confidence: 97%

Political business cycle and fiscal discipline in Sub-Saharan Africa

et al. 2021

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We tested the Political Business Cycle theory in Sub-Sahara Africa. To provide an empirical explanation for this nexus, this paper used unbalanced panel data from thirty-six (36) Sub-Saharan African countries between 1990 and 2018. The system Generalized Method of Moment (GMM) developed by Arrelano-Bover/Blundell-Bond was employed to analyze the collected data. The results of the system GMM revealed that the fiscal deficit is significantly large in election years and the deficit spending spills into the year after the election, though not as high as in the election year. We could not, however, find a significant effect in the pre-election year. In addition, we found evidence suggesting that though democracy significantly lowers the fiscal deficit, it promotes higher deficit spending in the election year and the year after the election. Hence, the study established the existence of a political business cycle in Sub-Saharan African countries. The study thus recommends that sound economic policies should be put in place to reduce the persistent deficit in SSA so as to maintain sustainable fiscal health, as well as the sustainability of macroeconomics, particularly enhanced industrialization, as the study found that countries' fiscal deficits are lower in more industrialized countries in the region.

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Political budget cycles, incumbency advantage, and propaganda

Cited by 24 publications

References 60 publications

Do expected downturns kill political budget cycles?

Do expected downturns kill political budget cycles?

Political cycles: Beyond rational expectations

Political business cycle and fiscal discipline in Sub-Saharan Africa

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