634 - Do fiscal rules constrain political budget cycles?

DNB Working Papers
Date 9 May 2019
We examine whether fiscal rules constrain incumbent governments to use fiscal policy for re-election purposes. Using data on fiscal rules provided by the IMF for a sample of 77 (advanced and developing) countries over the 1984-2015 period, we find that after the Global Financial Crisis political budget cycles occur only in countries with weak fiscal rules. This conclusion is robust for the inclusion of other conditioning factors for political budget cycles identified in the literature (such as media freedom, the presence of checks and balances, and the maturity of democracy) and for controlling for the potential endogeneity of fiscal rules.
 
Keywords: political budget cycles, fiscal policy, fiscal rules.
JEL-code: E62, H62.