Elections, Fiscal Policy and Fiscal Illusion

NIPE Working Paper No. 18/2010

32 Pages Posted: 13 Dec 2010  

Paulo Mourao

University of Minho, Department of Economics

Linda G. Veiga

University of Minho - Economic Policies Research Unit (NIPE)

Date Written: June 1, 2010

Abstract

This paper tests the joint hypotheses that policymakers engage in fiscal policy opportunism and that voters respond by rewarding that opportunism with higher vote margins. Furthermore, it investigates the impact of fiscal illusion on the previous two dimensions. Empirical results, obtained with a sample of 68 countries from 1960 to 2006, reveal that opportunistic measures of expenditures and revenues generate larger winning margins for the incumbent and that the opportunistic manipulation of fiscal policy instruments is larger when the current government is less likely to be reelected. Furthermore, fiscal illusion contributes to the entrenchment of incumbent policymakers in office and promotes opportunistic behaviour.

Keywords: fiscal policy, voting, opportunism, fiscal illusion

JEL Classification: D7, E6, H3

Suggested Citation

Mourao, Paulo and Veiga, Linda G., Elections, Fiscal Policy and Fiscal Illusion (June 1, 2010). NIPE Working Paper No. 18/2010. Available at SSRN: https://ssrn.com/abstract=1656631 or http://dx.doi.org/10.2139/ssrn.1656631

Paulo Mourao

University of Minho, Department of Economics ( email )

Braga 4710-057
Portugal

Linda G. Veiga (Contact Author)

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, P-4710-057
Portugal
+351-253604568 (Phone)
+351-253601380 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/linda/

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