Electoral effects on the composition of public spending and revenue: evidence from a large panel of countries

Abstract

This paper examines the effects of elections on central governments’ fiscal policy conducts. We construct a unique database of disaggregated spending and revenue series at the central government level, for a panel of up to 107 countries over the 1975-2010 period. Using this data, we show that under some specific political environments, incumbents generate political budget cycles, predominantly by increasing current, rather than capital, spending and reducing taxes, most often income taxes. However, when democracies are matured, in election years, central governments reallocate their expenditure and revenue components, without changing their total levels. Specifically, they reallocate spending from capital spending to grants to other government units, while reducing income taxes and increasing consumption taxes instead.