1887

OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Revisiting Political Budget Cycles in Latin America

In this paper we test the impact of elections on fiscal policy in Latin American economies in comparison to OECD countries over the period 1990-2006. We find that in Latin American countries, the average primary balance declines by an amount close to 0.7 per cent of GDP during an election year, confirming the hypothesis of fiscal deteriorations during the election cycle. Most of this movement is due to the expenditure component and within this it is current (close to 0.8 per cent of GDP) rather than capital expenditure that is most affected. By contrast, in OECD countries, the observed changes in the primary balance and current expenditures during election years are minimal. Our analysis also suggests that re-elections of incumbent candidates in Latin America have a considerable impact on the expenditure side of the fiscal balance. Finally, by comparing the 2005-2006 electoral cycle with respect to prior electoral cycles, we note a slight improvement of fiscal management around elections in the region. We derive policy implications and recommendations from our findings.

English

Keywords: political budget cycle, elections, incumbent candidates, Latin America
JEL: H62: Public Economics / National Budget, Deficit, and Debt / National Deficit; Surplus; E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy; P16: Economic Systems / Capitalist Systems / Capitalist Systems: Political Economy; D72: Microeconomics / Analysis of Collective Decision-Making / Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
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