Political Budget Cycles In Developed and Developing Countries ∗

This paper uses a large panel data set to examine the relation between elections and fiscal policy. We find evidence of political budget cycles in both developed and developing countries: government spending increases before elections while revenues fall, leading to a larger deficit in election years. We demonstrate that political budget cycles are much larger in developing countries than in developed countries. Comparing predetermined elections, we find that the difference in the size of political budget cycles between developing and developed countries is magnified. Finally, we show that these electoral effects are particularly strong in countries with weak institutional constraints on incumbents’ rent-seeking ability. JEL classification: D72, E62, P16, P26