Government Weakness and Electoral Cycles in Local Public Debt: Evidence from Flemish Municipalities

Abstract

Empirical research on Political Business (and Budget) Cycles is more supportive for electoral cycles in policies than in macro-economic outcomes. But even pre-electoral policy cycles receive no unanimous confirmation. In the present paper, we give credence to recent arguments that this may be due to the disregard for the political, economic and institutional context in which politicians make policy decisions. Specifically, we argue that the level of political fragmentation of the government affects both the need for and possibility to engage in opportunistic policy cycles. An analysis of local public debt data for 296 Flemish municipalities provides empirical support for this contention.

Keywords: Political Budget Cycles, local public debt, political fragmentation, elections, municipalities

JEL Classification: E62, H72, H74