Why Do Voters Support Procyclical Fiscal Policies? Experimental Evidence from Latin America

Abstract

We examine two novel explanations of voter support for welfare-reducing procyclical fiscal policies: voters who incorrectly believe that public spending is aligned with their preferences prefer procyclical policies; and voters who trust politicians favor procyclical spending because they believe that they will benefit from higher government expenditures after positive shocks and be spared cuts after negative shocks. Data from an original survey experiment in Latin America support both predictions:  less informed and more trusting individuals favor procyclical policy.  Results also yield evidence about previously untested assumptions regarding key determinants of voters' policy preferences. Impatient and less risk-averse respondents favor procyclical policy.

Keywords: Procyclical fiscal policy, asymmetric information, trust, patience, risk aversion