Parties, Institutions and Political Budget Cycles at the Municipal Level

38 Pages Posted: 30 Nov 2012

Date Written: October 26, 2012

Abstract

We study the magnitude, the determinants and the electoral consequences of pre-electoral fiscal manipulation by incumbent politicians. To this aim, we build a dataset covering all the Italian municipalities. We document several facts. First, there is a clear political cycle in the path of expenditures, driven by capital outlays. Second, only mayors not affiliated to a national political party induce an election-driven expenditure cycle. Third, pre-electoral expenditure boosts increase re-election prospects of the incumbent only if she is not affiliated to a party. These results are consistent with the hypothesis that national parties have both the incentives and the resources to curb the pre-electoral profligacy of party-affiliated mayors. We also consider the impact of formal institutions. In particular, we find that budget rules reduce the effects of the political cycle, whereas binding term limits seem to be ineffective.

Keywords: political budget cycles, local public finance, political parties

JEL Classification: D72, H72

Suggested Citation

Cioffi, Marika and Messina, Giovanna and Tommasino, Pietro, Parties, Institutions and Political Budget Cycles at the Municipal Level (October 26, 2012). Bank of Italy Temi di Discussione (Working Paper) No. 885. Available at SSRN: https://ssrn.com/abstract=2182583 or http://dx.doi.org/10.2139/ssrn.2182583

Marika Cioffi

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Giovanna Messina

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Pietro Tommasino (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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