The Dynamics of the Political Budget Cycle: an Empirical Examination of Municipal Spending in Austria
Abstract: Using a fairly large data set covering more than 10,000 elections, this paper analyzes the effect of elections on municipal spending in Austria. The paper not only produces further evidence that there is an electoral cycle in fiscal policy but emphasizes the role of dynamics in government spending. In contrast to recent suggestions to look for the cycle in monthly data immediately before an election, this paper tests the hypothesis that pre-electoral spending increases may begin well before the election year. The paper shows that getting the dynamic specification right is crucial to identify the effect of elections on government spending decisions. Separating elections early and late during the year and allowing for differential dynamic processes may not only explain insignificant results in previous studies but also confirms the idea of pre electoral expansions that will commence well before the election year.
