Election results and opportunistic policies: A new test of the rational political business cycle model
- 947 Downloads
The literature on the rational PBC suggests that politicians systematically manipulate economic and fiscal conditions before elections to increase their chances of reelection. Most tests of this theory look for evidence of pre-election distortions in fiscal policy. We propose a new test that explores the two-way interaction between the magnitude of the opportunistic distortion and the margin of victory. The test is implemented using a large panel of Portuguese municipalities. The results show that opportunism leads to a larger win-margin for the incumbent and that incumbents behave more opportunistically when their win-margin is small. These results are consistent with the theoretical model.
KeywordsVote and popularity functions Opportunism Rational political business cycles Local government System estimation Portugal
Unable to display preview. Download preview PDF.
- Blais, A., & Nadeau, R. (1992). The electoral budget cycle. Public Choice, 74, 389–403. Google Scholar
- DGAL (1979–1983 and 1986–2001). Finanças Municipais. Direcção Geral das Autarquias Locais (DGAL), Lisbon. Google Scholar
- Hibbs, D. (1987). The political economy of industrial democracies. Cambridge: Harvard University Press. Google Scholar
- Paldam, M. (2004) Are vote and popularity functions economically correct? In C. K. Rowley & F. Schneider (Eds.), The encyclopedia of public choice (Vol. I, pp. 49–59). Norwell: Kluwer Academic Publishers. Google Scholar
- Persson, T., & Tabellini, G. (1990). Political economics: explaining economic policy. Cambridge: MIT Press. Google Scholar
- Rogoff, K. (1990). Equilibrium political budget cycles. American Economic Review, 80, 21–36. Google Scholar
- Tuomala, M. (1990). Optimal income tax and redistribution. Oxford: Clarendon Press. Google Scholar