How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries

Posted: 13 Aug 2009

See all articles by Adi Brender

Adi Brender

Bank of Israel - Research Department

Allan Drazen

University of Maryland - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 13, 2009

Abstract

We test conventional wisdom that good economic conditions and expansionary fiscal policy help incumbents get reelected in a panel of 74 democracies over 1960-2003. We find no evidence that deficits help reelection in any group of countries independent of level of development, level or age of democracy, or government or electoral system. In developed countries and old democracies, deficits in election years or over the term of office reduce the probability of reelection. Higher growth rates over the term raise the probability of reelection only in developing countries and in new democracies. Low inflation is rewarded by voters only in the developed countries. These effects are both statistically significant and quite substantial quantitatively.

Keywords: political budget cycle, political business cycle, fiscal manipulation

JEL Classification: D72, E62, H62

Suggested Citation

Brender, Adi and Drazen, Allan, How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries (August 13, 2009). American Economic Review, Vol. 98, No. 5, pp. 2003-2220, 2008. Available at SSRN: https://ssrn.com/abstract=1448482

Adi Brender (Contact Author)

Bank of Israel - Research Department ( email )

PO Box 780
Jerusalem 91007
Israel
+972 2 655 2618 (Phone)
+972 2 655 2657 (Fax)

Allan Drazen

University of Maryland - Department of Economics ( email )

College Park, MD 20742-1815
United States
301-405-3477 (Phone)
301-405-7835 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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