Political Budget Cycles: The Role of Government Competence Dispersion
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This paper empirically analyzes Political Budget Cycles (PBCs): the attempts of government to influence election outcomes using fiscal instruments. The consensus in the literature is that PBCs are strongest in countries with a large share of uninformed voters, which is often operationalized as a low degree of press freedom. In light of recent theoretical developments, this paper empirically shows that this need not always be the case. With the use of the Generalized Method of Moments (GMM) and a large panel data set including 85 countries in the period of 1960-2016, this paper shows a dampening effect of press freedom on the PBC in the overall sample, consistent with existing literature, yet this effect pertains only to those countries where government competence is volatile. Countries where government competence is stable do not exhibit a PBC, regardless of the degree of press freedom. The findings hold in particular in presidential and new democracies.
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