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Electoral Confidence and Political Budget Cycles in Non-OECD Countries

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A Correction to this article was published on 29 May 2023

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Abstract

There is a growing consensus in the literature that the occurrence of political budget cycles (PBCs) is highly conditional upon context. Most studies have focused on incumbents’ abilities to engage in pre-electoral fiscal manipulation while neglecting their incentives. This is particularly true for studies outside the Organization for Economic Cooperation and Development (OECD), which have attributed to incumbents a uniform and constant motivation to manipulate budgets in order to win elections. We argue that this is not the case. Using new data on state spending from 1960 to 2006 for 76 non-OECD countries, we show that PBCs primarily occur under conditions of uncertain electoral prospects. Thus, incentives to manipulate public spending prior to elections vary according to the incumbent’s electoral confidence. Given the particular context of non-OECD countries, we argue theoretically and show empirically that incumbents’ electoral confidence primarily depends on the tightness of past electoral results. Past political competition is thus a key driver of fiscal behavior in non-OECD countries.

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Notes

  1. Following Alt and Rose (2009, p. 845), we define PBCs as “regular, periodic fluctuation in a government’s fiscal policies induced by the cycle of elections.”

  2. We exclude all countries that are currently members of the OECD from the analysis. The group of countries we analyze is thus not entirely commensurate, yet certainly overlapping to a large extent, with economically less developed countries.

  3. See, for instance, Block et al. (2003) on Africa and Akhmedov and Zhuravskaya (2004) on Russia. Hyde and O’Mahoney (2010) study only the period after 1990.

  4. It is generally agreed that PBCs are stronger in spending than in revenues (Alt and Rose 2009). Thus, if we do not find PBCs in spending, it is unlikely that we will find PBCs in revenues.

  5. We consider PBCs, patronage, and vote-buying distinct phenomena (with corresponding distinct bodies of literature) but recognize that they intersect when patronage and vote-buying is government funded. Our analysis captures only this intersection. Whether budget increases are used to fund public goods (roads, schools, hospitals, etc.) or private goods (wages, pensions, jobs, etc.) is a question of budget allocation, which we do not analyze in this paper.

  6. The alternative partisan model of PBCs (Alberto Alesina 1987; Hibbs 1977) assumes relatively cohesive political parties with clearly delineated ideologies and is therefore unsuited for studies of PBCs in non-OECD countries (Block 2002; Vergne 2009).

  7. Persson and Tabellini (2003) argue that in parliamentary systems, incumbents control both the executive and the legislature, making it easier to push through budgets and public accounts. Franzese (2002) argues that the separation of powers that characterizes presidential systems prevent incumbents from manipulating public spending.

  8. Schultz (1995) suggests that the effect is positive and linear (unpopular governments boost public spending, as they fear losing elections; popular governments do not), while Price (1998) argues that it is bell-shaped (very unpopular governments also do not boost public spending as the costs of hiking up spending to the required level outweigh the benefits of being re-elected).

  9. First surveys occurred in the USA (1936), the UK (1937), and France (1938), followed by Australia, Canada, Denmark, Switzerland, the Netherlands, West Germany, Finland, Norway, and Italy by 1946 (see Worcester 1989).

  10. In a survey conducted by the University of Maryland just before the elections, Amr Moussa was predicted to obtain 28 % (obtained 11.13 %), and Abdel Moneim Abdel Fotouh was given 32 % (obtained 17.47 %).

  11. Particularly problematic are restrictions that forbid the publication of polls prior to elections. These blackout periods vary from 1 day to up to 4 weeks in some countries. According to the World Association for Public Opinion Research (WAPOR), pre-election restrictions have increased, and in 2012, virtually, every other country reported the existence of blackout periods before elections (Chung 2012). This means that even if pre-election polls exist, incumbents might be unable to access the information that would allow them to gauge their re-election prospects.

  12. Note that we do not make any assumption about expectation formation of voters, which has been a matter of ongoing discussion in political science and economics (Franzese 2002; Krause 1997).

  13. Correlation between both data sources is still high, generally in the area of 0.70 and above. This implies that both datasets can be used interchangeably for periods past 1972.

  14. The three properties are coded in Hyde and Marinov (2011).

  15. In the classification scheme proposed by Marshall and Jaggers (2010), the polity threshold of −6 separates autocracies from hybrid regimes.

  16. In practice, this means that we do not consider parliamentary elections in presidential political systems. To select politically important elections, we combine data from the Arthur Banks Dataset (2011) on the type and the mode of selection of the chief executive.

  17. Since there is no literature on cross-country predictors of survey accuracy, we selected our predictors inductively, bearing in mind theoretical plausibility and a high predictive power as measured by R 2. The final R 2 was quite satisfactory with 49 % of the error predicted by our model. Details on the model including a full list of variables are available in the Online Appendix (Table A3).

  18. This binary indicator combines information from two variables in the NELDA dataset, namely, Nelda 25 and Nelda 26.

  19. However, a stumbling economy might considerably limit the incumbent’s capacity to engage in discretionary fiscal policies, making the latter scenario somewhat unlikely.

  20. A summary statistic of our variables, as well as a list of all included countries is available in the Online Appendix (Tables A1 and A2).

  21. An Arellano-Bond test suggests the inclusion of three lags to remove all serial correlation in the error term.

  22. A Hausman test suggests the use of country fixed effects.

  23. Panel-specific heteroskedasticity was detected using a modified Wald test.

  24. The bias amounts to 1/T.

  25. In the Online Appendix, we run an alternative model with a continuous measure of electoral confidence, carried forward from the last elections (Table A8). The substantive findings of this paper remain robust to this model adjustment.

  26. This graph follows the suggestions of Berry et al. (2012).

  27. The scale for the effect on the budget balance can be found on the left y axis.

  28. The scale for the histogram can be found on the right y axis.

  29. To be precise, we should see this effect in 95 % of our cases.

  30. As the survey indicator is not available for all countries in the sample, we lose 225 observations and three countries when adding the variable.

  31. These additional control variables are not included in our base model as they are considered less important in the literature and are therefore rarely included in standard models of PBCs.

  32. Recall that we exclude elections where no opposition was allowed, where only one party was legal, or where there was no choice of candidates on the ballot. Effectively, Party ban therefore becomes a three-point scale, ranging from “yes, many parties are banned” to “no, no parties are officially banned.”

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Authors and Affiliations

  1. King’s College London, London, UK

    Ferdinand Eibl

  2. University of Oxford, Oxford, UK

    Ferdinand Eibl & Halfdan Lynge

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  1. Ferdinand Eibl
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Correspondence to Ferdinand Eibl.

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Eibl, F., Lynge, H. Electoral Confidence and Political Budget Cycles in Non-OECD Countries. St Comp Int Dev 52, 45–63 (2017). https://doi.org/10.1007/s12116-016-9230-x

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