Fa mawa i, S i; Fi ady, A dyan o; Widodo, T i
A icle
Poli ically d i en cycles in iscal policy: E idence om
disagg ega ed budge s in middle-income coun ies
Economies
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Fa mawa i, S i; Fi ady, A dyan o; Widodo, T i (2025) : Poli ically d i en cycles in
iscal policy: E idence om disagg ega ed budge s in middle-income coun ies, Economies, ISSN
2227-7099, MDPI, Basel, Vol. 13, Iss. 6, pp. 1-29,
h ps://doi.o g/10.3390/economies13060151
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/329431
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h ps://c ea i ecommons.o g/licenses/by/4.0/
Academic Edi o : Angeliki
N. Menegaki
Recei ed: 20 Ma ch 2025
Re ised: 18 May 2025
Accep ed: 19 May 2025
Published: 28 May 2025
Ci a ion: Fa mawa i, S., Fi ady, A., &
Widodo, T. (2025). Poli ically D i en
Cycles in Fiscal Policy: E idence om
Disagg ega ed Budge s in Middle-
Income Coun ies. Economies,13(6),
151. h ps://doi.o g/10.3390/
economies13060151
Copy igh : © 2025 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
condi ions o he C ea i e Commons
A ibu ion (CC BY) license
(h ps://c ea i ecommons.o g/
licenses/by/4.0/).
A icle
Poli ically D i en Cycles in Fiscal Policy: E idence om
Disagg ega ed Budge s in Middle-Income Coun ies
S i Fa mawa i 1,2,* , A dyan o Fi ady 1and T i Widodo 1
1Depa men o Economics, Facul y o Economics and Business, Gadjah Mada Uni e si y,
Yogyaka a 55281, Indonesia; [email p o ec ed] (A.F.); [email p o ec ed] (T.W.)
2Depa men o Accoun ing, Facul y o Economics and Business STIE Yayasan Kelua ga Pahlawan
Nega a (STIE YKPN), Yogyaka a 55281, Indonesia
*Co espondence: [email p o ec ed]; Tel.: +62-81225091871
Abs ac : This pape examines he elec o al cycle and he conduc o he cen al go e n-
men ’s iscal policy. I uses a panel da abase wi h disagg ega ed spending and e enue
se ies o 34 middle-income coun ies o e 2000–2022. A dynamic panel app oach was
used o look a o e all go e nmen spending and income, and hei pa s, o ind budge
pa e ns du ing elec ion seasons. The analy ical me hodology employs he wo-s ep sys em
gene alized me hod o momen s o add ess endogenei y conce ns. The dynamic e ec cap-
u ed by he i s lag o budge a y indica o s sugges s ha he widening o ha indica o is
pe sis en . The e is e idence ha he cu en go e nmen is oppo unis ic, which sugges s
ha he elec o al cycle a ec s iscal pe o mance, especially when i comes o spending on
economic ma e s and axes on income, p o i s, and capi al gains. Policymake s should be
mo e awa e o he go e nmen ’s oppo unis ic impac du ing he elec o al pe iod. To keep
he budge s able, egula ing co up ion and ha ing a democ a ic a i ude migh lessen he
e ec s o he elec o al cycle.
Keywo ds: poli ical budge cycle; iscal indica o ; con ol o co up ion; democ acy le el;
middle-income coun ies; wo-s ep GMM
1. In oduc ion
Mos empi ical e idence indica es ha incumben poli icians ypically seek o dec ease
e enue and augmen expendi u e, pa icula ly when campaigning o e-elec ion. We
e e o his phenomenon as he poli ical budge cycle. The poli ical budge cycle a ises
om incumben s’ aspi a ion o e-elec ion by appealing o o e s (Baska an e al.,2016;
No dhaus,1975). Budge cycles ypically mani es du ing he ini ial phases o a democ a ic
poli ical ansi ion and a e p edominan ly obse ed in de eloping na ions a he han
de eloped ones (B ende & D azen,2005,2008;Shi & S ensson,2006).
The poli ical budge cycle is a signi ican issue because o he insu icien in o ma ion
a ailable o o e s, allowing poli ical leade s o manipula e he budge o hei own
in e es s. Rogo (1987) asse ed ha asymme ic in o ma ion con ibu es o he poli ical
budge cycle, as o e s s uggle o assess he pe o mance o incumben s. Because o his,
he go e nmen has o use i s s onge powe o c ea e a unique image and appeal o o e s
by c ea ing iscal policies, especially be o e elec ions. The poli ical budge cycle illus a es
he cyclical a ia ions in economic policies in luenced by he da e o gene al elec ions in
mode n democ acies cha ac e ized by asymme ic in o ma ion among o e s.
The augmen a ion o go e nmen expendi u e se es as a a o able indica ion o
o e s conce ning he e icacy o incumben s and bols e s hei capaci y o deli e u he
Economies 2025,13, 151 h ps://doi.o g/10.3390/economies13060151
Economies 2025,13, 151 2 o 29
public goods be o e he elec ion (Rogo ,1987). Incumben s will augmen capi al in es men
o a ain sho - e m economic g ow h (Bon a i & Fo ni,2019;Klein & Saku ai,2015) and en-
hance social wel a e expendi u es o ele a e he income o impo e ished and middle-class
o e s who a e equen ly o e looked (Schneide ,2010;Ve gne,2009). Howe e , adding
mo e money o social wel a e p og ams like heal h ca e, educa ion, and social p o ec ion o
o e s migh no ha e he same e ec on incumben s because cons i uen s ha e di e en
and some imes con lic ing in e es s (Ba be ia e al.,2011). Enhancing social insu ance and
pension bene i s may no be ad an ageous o mos low- and middle-income o e s in ce -
ain na ions whe e a signi ican po ion o he wo k o ce is employed in he in o mal sec o .
Incumben s inc easingly depend on inancing in as uc u e imp o emen s, pa icula ly in
p ojec s wi h signi ican di ec isibili y, o showcase hei compe ence o o e s. Due o
o e s’ inabili y o accu a ely assess go e nmen spending and budge de ici s, hey o en
depend on p e-elec ion in o ma ion ega ding go e nmen expendi u es, leading hem o
pe cei e he incumben ’s compe ence as endu ing (Shi & S ensson,2006). Social spending
and in as uc u e in es men ypically escala e in he yea p eceding an elec ion, as he
angible e ec s on he economy equi e ime o mani es (Ba be ia e al.,2011).
Nume ous empi ical s udies highligh he signi icance o budge expendi u es du ing
he execu ion o gene al elec ions o e-elec ions. Galli and Rossi (2002) showed ha
go e nmen expendi u e escala es du ing elec ion pe iods, especially when incumben s
seek e-elec ion. Incumben s will endea o o enhance hei appeal o o e s by ca e ully
u ilizing he budge (Klein & Saku ai,2015). As shown by Balague -Coll and B un-Ma os
(2013), B ende and D azen (2005), and Cho a eas e al. (2016), he poli ical budge cycle
suppo s he idea ha ying o inc ease budge a y spending a ec s people’s beha io ,
speci ically hei o ing choices. Speci ic esea ch has iden i ied he impac o elec ions on
budge alloca ion ac oss many go e nmen al ie s, including na ional and egional le els.
Du ing elec ion yea s, budge a y expendi u es ypically ise, pa icula ly in dona ions,
social assis ance, educa ion, heal hca e, and oad in as uc u e (Beni o e al.,2013;Sjah i
e al.,2013).
The e idence conce ning he exis ence o he poli ical budge cycle p oduces a ied
ou comes. Alesina e al. (1999) and Al and Lassen (2006) demons a ed he p esence
o a poli ical budge cycle in OECD na ions, bu Schuknech (2000) iden i ied a poli ical
budge cycle in unde de eloped coun ies. Ve gne (2009) no ed ha se e al de eloping
na ions obse e he cycle only o speci ic spending ca ego ies. B ende and D azen
(2008) es ablished he p esence o he budge cycle u ilizing a mixed sample o OECD
and non-OECD na ions; howe e , Klomp and De Haan (2013a) could no subs an ia e i s
exis ence. Some de eloping coun ies expe ience he poli ical budge cycle mo e o en
han indus ialized coun ies (Klomp & De Haan,2013b). People equen ly iew he
poli ical budge cycle in de eloping na ions as a mo al haza d issue (Shi & S ensson,2006).
The concep posi s ha incumben s can egula e he ex en o public expendi u e while
con empla ing e-elec ion. Subsequen ly, o e s e alua e he goods and se ices p o ided.
Vo e s possess asymme ic in o ma ion conce ning he ex en o which public goods a e
a ibu able o he incumben ’s compe ence o iscal manipula ion. They lack he equisi e
in o ma ion o e alua e economic policies and he pe o mance o incumben s, he eby
enabling oppo unis ic beha io (Ve gne,2009). In hei a icle, B ende and D azen (2005)
s ess how impo an i is o o e s o ha e access o knowledge and in o ma ion so ha
hey can punish leade s who use money o gain poli ical ad an age. The accessibili y o
media o o e s is a c ucial elemen in a aining a obus democ acy, he eby ackling he
PBC p oblem (F. J. Veiga e al.,2017).
On he o he hand, se e al heo ies and empi ical indings abou he poli ical budge
cycle heo y mos ly ocus on de eloped coun ies (Bon a i & Fo ni,2019;Cas o & Ma ins,
Economies 2025,13, 151 3 o 29
2013;Fo emny & Riedel,2014), bo h when looking a g oups and indi iduals. Addi ional
esea ch is equi ed abou using he poli ical budge cycle heo y in de eloping na ions
classi ied as middle-income coun ies (MICs). When assessed by he comp ehensi e Uni ed
Na ions Human De elopmen Index, middle-income na ions a e ypically ca ego ized
as de eloping coun ies. MICs cons i u e 75% o he wo ldwide popula ion and 62%
o he impo e ished, p omp ing he asse ion ha MICs accoun o oughly one- hi d
o he wo ld’s GDP and se e as he p ima y d i e o global g ow h (Kha i ,2023).
The p ese a ion o go e nmen al budge a y sus ainabili y can ca alyze obus global
g ow h. Consequen ly, a mo e igo ous examina ion o he iscal condi ions in a ious
MICs, pa icula ly du ing elec o al pe iods, is equi ed. The iscal s ance o mos MICs
is ma ked by a gene ally weake iscal condi ion, cha ac e ized by ele a ed go e nmen
deb , heigh ened go e nmen expendi u e, and diminished e enue, pa icula ly du ing
elec o al cycles, which can exe iscal p essu e ha may a ec he iscal sus ainabili y o
each na ion.
This pape explo es he poli ical de e minan s o iscal policy choices. I ax cu s o
excessi e spending inc eases can p o ide elec o al ad an ages o poli icians, hen hey a e
p obable o do so. Ex ensi e li e a u e has e i ied hose assump ions, bu gene ally, hey
ely on agg ega ed da a. Wi h his da a ype, no hing can be said abou how go e nmen s
alloca e hei expendi u es inside hose b oad agg ega es. We migh ask, in wha a eas
a e hey spending mo e? Wha ype o e enue in luences poli icians’ a i udes? Which
componen s a e p e e ed? This means ha explo ing poli ical cycles on he sub-le els o
he budge bo h expendi u es and e enue is empi ically ele an and can p o ide a be e
unde s anding o he subjec .
U ilizing panel da a om 34 middle-income coun ies om 2000–2022, we ini ially con-
duc ed an empi ical in es iga ion o he na u e o he poli ical budge cycle in some na ions
suscep ible o oppo unis ic poli ical manipula ion o economic policies and ou comes. The
main ac o s ega ding ins i u ional quali y a e how well co up ion is con olled and how
democ a ic budge decisions a e made du ing elec ions. The sys em gene alized me hod
o momen s (SYS-GMM) is a dynamic panel echnique used du ing he elec ion cycle o
es ima e dynamic changes and educe endogenei y conce ns. This me hod has yielded
mo e in iguing esul s han hose p e iously a ailable.
The empi ical indings show ha agg ega e iscal indica o s, including o al go e n-
men spending and e enues, ini ia e he poli ical budge cycle in middle-income coun ies.
Al e a ions o he budge balance p edominan ly indica e a budge de ici and do no
e lec he cycle. The budge de ici emains unchanged du ing he elec ion, indica ing he
incumben ’s s a egy o e ade o e e ibu ion, pa icula ly om iscally conse a i e con-
s i uen s conce ned abou he ele a ed de ici (B ende & D azen,2008). This in con as o
low conse a i e o e s, who gene ally exhibi indi e ence owa ds he escala ing budge
de ici (Ga mann,2017).
Then, looking a sepa a e iscal a iables shows ha spending on economic issues
has a bigge e ec on he budge cycle, bo h be o e and du ing elec ions. Elec ion- ela ed
inc eases in go e nmen expendi u e coincide wi h a su ge in e enue, he eby educing
he budge de ici . The e enue componen ha has isen is he ax on income, p o i , and
capi al gains, e e ed o as di ec ax. Di ec axes signi ican ly impac he poli ical budge
cycle mo e han indi ec axes.
The s udy indings indica e ha go e nmen al oppo unism diminishes as he e icacy
o in e nal co up ion con ol among ins i u ions escala es. Also, he e is less budge
manipula ion du ing elec ion seasons wi h a highe democ a ic es ablishmen . This is
ue o bo h spending and income. This pape consis s o se e al sec ions. Sec ion 2
p esen s he heo e ical amewo k and li e a u e e iew. Sec ion 3summa izes he da a,
Economies 2025,13, 151 4 o 29
esea ch a iables, and he employed esea ch model. Sec ion 4ou lines he empi ical
esul s and unde akes he discussion. Finally, Sec ion 5p esen s ou concluding ema ks
and policy ecommenda ions.
2. Theo e ical Backg ound and Li e a u e Re iew
2.1. Theo e ical Model
Shi and S ensson’s (2006) pe spec i e highligh s he signi icance o wo c i ical aspec s
in mi iga ing mo al haza d wi hin he elec o al budge cycle. Many expe s asse ha
he poli ical budge cycle (PBC) a ies be ween coun ies and equen ly con end ha i
is pa icula ly ac i e in de eloping na ions o lowe socioeconomic classes. Each coun y
possesses ce ain a iables ha can a ec he mo i a ions and capaci ies o poli icians o
manipula e iscal policy be o e elec ions. This model elucida es wo condi ional ac o s
ha can in luence he amoun o PBC: he incen i es o poli icians o e ain powe and he
numbe o knowledgeable o e s. We ou line a basic scheme only.
The e is an assump ion ha each poli ician has a ce ain compe ence le el in hese
mo al haza d models. Vo e s ha e a ional expec a ions and wan o elec he poli ician
o incumben wi h he highes compe ence le el. The compe ence le el is unobse able,
so o e s mus decide based on he incumben go e nmen ’s obse able mac oeconomic
pe o mance such as he amoun o public goods. The e is a e y impo an assump ion
ha he incumben go e nmen can also exe hidden e o o s imula e policy ins umen s.
The mo al haza d models by he u ili y unc ion o o e s iin pe iod is
Ui
=∑T
s= βs− [gs+u(Cs)+θizs](1)
whe e g
is he consump ion o a go e nmen -p o ided good (pe capi a) in pe iod ,c
is
p i a e consump ion, z
is a bina y a iable aking he alue
−
½ i ais elec ed and ½ i bis
elec ed, u(c) is a s anda d conca e u ili y unc ion.
The model assumes ha he economy comp ises many ci izens, each o whom de i es
u ili y om a p i a e and public consump ion good. Two poli icians (poli ical pa ies) a e
deno ed by aand b. All agen s a e expec ed u ili y maximize s. All o e s a e alike in
hei p e e ences o e consump ion, bu hey di e in he pa ame e
θi
, which is uni o mly
dis ibu ed on [
−
½, ½). I
θi
< 0 o e iis biased in a o o pa y a(and ice e sa), his
can be seen as alua ion o ano he dimension (policy o pe sonal cha ac e is ics) on which
he candida es di e .
The ou pu o public goods (g ) is de e mined esidually by he ollowing:
g =τ +d −R(d −1) + ηj
(2)
whe e
τ
means axes, d
means bo owing, R(d) is a con inuous cos unc ion o public
bo owing wi h R(0) = 0 and R(d) > 0 o all d> 0, and ηj
means ce ain compe ence le el.
A he beginning o each pe iod, all ci izens ecei e an exogenous income y. Public
good p o ision is inanced wi h a lump sum ax τ.
c =y−τ (3)
The poli icians de i e hei own u ili y om consump ion goods in he same way as
o he ci izens. Fu he mo e, he au ho s s a e ha he poli ician can gain addi ional ego
en s, X. The e a e only wo pe iods (elec ion and pos -elec ion pe iod). Thus, elec ions
ake place a he end o e e y o he pe iod and poli ical candida e j’s u ili y unc ion is
as ollows:
Vj
=∑T
s= βs− [gs+u(cs) + Xs], o j={a,b}(4)
Economies 2025,13, 151 5 o 29
A he ime o he elec ions , o e s will o e o he candida e who will deli e he
bes expec ed ou come in pe iod + 1. The budge cons ain in pe iod is as ollows:
g =τ∗+d +η , (5)
whe e τ*is he op imal ax a e.
Since bo owing is cos ly and he ma ginal u ili y o public consump ion is cons an ,
he go e nmen will no bo ow in pe iod + 1; i will un a p ima y su plus o educe i s
deb . Thus,
g +1=τ∗ −R(d ) + η +1. (6)
A beginning a pe iod , he incumben se s
τ
and d o maximize his o al expec ed
u ili y o e he nex wo pe iods. A shock occu s du ing he pe iod. This iming implies
ha he incumben acing a la ge se o possible policy p oblems knows he ax code, while
he is unce ain abou he ax e enue i will gene a e. The i s o de condi ion (FOC) o
he maximiza ion p oblem men ioned in he ci ed a icle equa es he ma ginal disu ili y o
axes wi h he ma ginal u ili y o spending.
In equilib ium condi ion, he incumben will o e s imula e he economy be o e an
elec ion by bo owing, e en hough o e s a e a ional and o wa d looking. No e also
ha o e s ully expec he chosen deb le el, so i does no a ec he incumben ’s e-
elec ion p obabili y in equilib ium. Mo eo e , he magni ude o he de ici depends on
wo ins i u ional ea u es o he economy: he poli icians’ en s o emaining in powe and
he capaci y o in o med o e s in he elec o a e. The ea u es may explain he a ia ion
in he size o poli ical budge cycles in ce ain coun ies. We cons uc p oxies o he wo
ins i u ional ea u es based on he con ol o co up ion and democ acy index.
2.2. Li e a u e Re iew and Hypo hesis De elopmen
2.2.1. Elec ion and Budge a y Indica o
The poli ical budge cycle (PBC) model expands upon he poli ical business cycle
heo y es ablished by No dhaus (1975) by examining he impac o he poli ical p ocess
on economic condi ions. The model highligh s he go e nmen ’s p onounced in en o
engage in public in es men s in an icipa ion o poli ical un es du ing he elec o al pe iod.
Economic da a, such as in la ion and unemploymen a es, ac as c i ical benchma ks
o he incumben adminis a ion in shaping people’s poli ical p e e ences. The PBC
model was ini ially p oposed by Rogo and Sibe (1988), posi ing ha he incumben
go e nmen ’s inclina ion o manipula e he budge subs an ially a ec s he economic
condi ions du ing he elec ion yea o secu e o e suppo . The budge cycle is in luenced
by o e s’ asymme ic in o ma ion abou he incumben s’ compe ency. Incumben s con end
ha budge manipula ion can os e a a o able pe cep ion among o e s conce ning
hei compe ency.
The cu en esea ch on he poli ical cycle p o ides a heo e ical amewo k and em-
pi ical e idence con i ming ha economic condi ions in luence elec ion success. Ele a ed
go e nmen expendi u e on economic ac i i ies be o e elec ions can s imula e demand and
p omo e economic g ow h, pa icula ly du ing economic ecessions (De a ajan e al.,1996;
Pa ui,2022). In his con ex , a o able economic condi ions a e equen ly co ela ed wi h
an inc eased likelihood o incumben s secu ing e-elec ion (Aid e al.,2011;Akhmedo
& Zhu a skaya,2004;Cas o & Ma ins,2013;L. G. Veiga & Veiga,2007). Vo e s penalize
incumben s o de e io a ing economic condi ions by selec ing opposi ion candida es and
poli ical pa ies (K aeme ,1997;Lind all,2014;Nguyen,2021). Consequen ly, incumben s
o en p omo e sho - e m economic g ow h o enhance hei p ospec s o e-elec ion. Pel z-
man (1992) and Alesina e al. (1999) p esen ed e idence indica ing ha he likelihood o a
Economies 2025,13, 151 6 o 29
p esiden ’s e-elec ion in a ious de eloped na ions diminishes when he de ici escala es
h oughou hei enu e. An inc eased sha e o iscally conse a i e o e s in an elec ion
co ela es wi h a diminished likelihood o e-elec ion o incumben s sus aining a budge
de ici (B ende ,2003;B ende & D azen,2008). Con e sely, he choice o incumben s o
augmen o e all expendi u e and incu subs an ial budge de ici s h oughou elec ion
cycles anspi es solely in elec o al con ex s cha ac e ized by minimal p opo ions o iscally
conse a i e o e s (Ga mann,2017).
We es ed he exis ence o PBCs in mul iple coun ies, collec i ely and indi idually,
using Rogo ’s PBC equilib ium model. Much esea ch shows ha budge de ici s, o e all
spending, and o he budge a y alloca ions ela ed o elec ions a e wo sening. L. G. Veiga
and Veiga (2007) ecognized he exis ence o a PBC a he municipal le el in Po ugal.
Du ing he elec ions, he e was an escala ion in he budge de ici and o e all expendi u e,
pa icula ly in highly isible a eas like in es men and capi al ou lay. Con e sely, ax
e enue exhibi s a dec ease. Acco ding o Lewis (2018), he esul s a e suppo ed by he
ac ha be o e and du ing elec ion seasons, he go e nmen usually spends a lo o money
on building in as uc u e like b idges and oads ha connec communi ies as a sign o
how compe en he cu en leade is. The epo om 2016 also demons a es he ise in
budge de ici s and o e all expendi u e a ibu able o elec ions. The s udy was conduc ed
by Cho a eas e al. (2016) in G eece. The in es men spending ca ego y p edominan ly
comp ises sho - e m p ojec de elopmen . Oppo unis ic beha io mani es s socially,
as incumben s equen ly augmen public expendi u e p eceding and du ing elec ion,
pa icula ly o appease low-income cons i uen s (Schneide ,2010). Nguyen e al. (2022a)
demons a ed his by augmen a ion social spending in 108 na ions om 1991 o 2019.
The s udy esul s indica e a 0.14% inc ease in go e nmen expendi u e on social wel a e,
encompassing heal h, educa ion, and social secu i y, du ing elec ion yea s.
B ende and D azen (2008) could no demons a e he p esence o escala ing go e n-
men spending o inc easing budge de ici s du ing he p e-elec ion pe iod. The p e-elec ion
pe iod augmen s budge balance, po en ially signaling a o ably o o e s. Ka simi and
Sa an ides (2012) ound no de ini i e e idence o a budge cycle when examining al e -
a ions in o al go e nmen expendi u e du ing elec ion imes ac oss 19 OECD na ions om
1972 o 1999. This condi ion is assessed as incumben s o en in luence iscal spending
by modi ying he con en o expendi u es ins ead o changing he o al expendi u e i sel
(Schneide ,2010;L. G. Veiga & Veiga,2007). To ensu e he budge is s able and long-las ing,
incumben s wan o e-alloca e unds o change he makeup o iscal elemen s, such as
income o spending (D azen & Esla a,2010;Ka simi & Sa an ides,2012). Acco ding o
D azen and Esla a (2010), incumben s cu back on spending on hings like in e es pay-
men s, ans e ing e i ees, and empo a y wo ke con ac s be o e elec ions, while a
he same ime inc easing spending on hings like in as uc u e de elopmen o heal h,
oad cons uc ion, i iga ion, ene gy, and housing. Ce ain poli icians in B azil p io i ize
capi al expendi u e o e cu en expendi u e while ensu ing budge a y equilib ium and
o al go e nmen spending (Bon a i & Fo ni,2019;Klein & Saku ai,2015). Ve gne (2009)
analyzed 42 de eloping na ions om 1975 o 2001, e ealing ha al hough he de ici and
o al expendi u e emained cons an , he composi ion o spending shi ed owa ds cu en
expendi u e a he expense o capi al in es men .
The poli ical budge cycle hypo hesis says ha he go e nmen needs o ix budge
imbalances because incumben s ake ad an age o oppo uni ies be o e an elec ion (Cas o
& Ma ins,2013;No dhaus,1975;Rogo ,1987). In mos de eloping na ions, go e nmen
expendi u e diminishes ollowing elec ion yea s and is no ably lowe han be o e elec ions
(Block,2001). Ames (1977) analyzed a sample o La in Ame ican coun ies om 1947 o
1982 and de e mined ha go e nmen spending be o e elec ions ose by 6.3% and hen
Economies 2025,13, 151 7 o 29
ell by o e 7.6% pos -elec ions. He con ends ha he adminis a ion seeks o cu capi al
spending ollowing he elec ion yea o ec i y he budge de ici . Nguyen and T an (2023)
a gue ha in he pos -elec o al pe iod, go e nmen spending dec eases and, con e sely,
o al e enue inc eases o main ain budge balance con inui y. Based on hese mixed esul s,
he ollowing hypo hesis is p oposed:
Hypo hesis 1 (H1). The ime p eceding and du ing he elec ion yea has a nega i e e ec on he
balance budge and go e nmen spending.
Hypo hesis 2 (H2). The pe iod ollowing he elec ion yea has a nega i e e ec on he go e nmen
expendi u e.
Mos o he esea ch looks a he connec ion be ween he poli ical budge cycle and
changes in go e nmen spending o spending ela ed o changes in ax a es (Block,2001;
B ende & D azen,2005;Schuknech ,2000). Eh ha (2013) explici ly analyzed he impac
o elec ions on axa ion in 56 de eloping na ions om 1980 o 2006. The s udy indings
indica e ha he e is a de imen al impac on ax e enue p eceding and du ing elec ion,
especially indi ec axes, o aling 0.2%. This aligns wi h he pe spec i e o D azen and
Esla a (2010), who con end ha indi ec axes exe a mo e ex ensi e in luence han di ec
axes. The educ ion in axa ion is an icipa ed o yield g ea e ad an ages o p ospec i e
o e s. The educ ion in ax a es be o e elec ions is equen ly deemed a o able; ye i may
also escala e expendi u es o esponsibili ies o he go e nmen due o he de e io a ion o
i s budge . Consequen ly, he go e nmen can augmen ax e enues be o e elec ions o
amass subs an ial inancial esou ces o consolida ing poli ical powe (P icha d,2018). Tax
a es we e ele a ed in he pos -elec ion pe iod o add ess iscal equi emen s (Schuknech ,
2000). Based on hese esul s, he ollowing hypo hesis is p oposed:
Hypo hesis 3 (H3). The ime p eceding and du ing he elec ion yea has a nega i e e ec on he
go e nmen e enue.
2.2.2. Condi ional Fac o : Co up ion and Democ acy
Decisions conce ning he go e nmen budge a e a consensus among all go e nmen al
pa ies, wi h poli icians playing a signi ican ole in he p ocess. Poli icians may engage in
co up ion d i en by he ambi ion o augmen he budge , po en ially by b ibe y (Mau o,
1998;Vuko i´c,2020). An inc ease in go e nmen expendi u e du ing he p e-elec ion pe iod
is deemed e y sensi i e, as mains eam poli ical pa ies may sc u inize he incumben ’s
spending decisions. Incumben s may be disinclined o pa icipa e in go e nmen unding
ini ia i es ha could expose hem o poli ically mo i a ed co up ion inqui ies be o e o
du ing he elec ion cycle (Pie skalla & Sacks,2018). Con e sely, some pe spec i es asse
ha co up poli icians will e ade elec o al epe cussions due o hei capaci y o enginee
a mo e sa egua ded sys em (Co iello & Gaglia ducci,2017;Vuko i´c,2020). The ole o
co up ion con ol in he poli ical budge cycle is subjec o in ense sc u iny, despi e he
a ying pe spec i es ou lined abo e.
Ce ain empi ical s udies yield con adic o y esul s abou he impac o co up ion
on poli ical ou comes. Pe e s and Welch (1980) con ended, based on s udies om 1968 o
1978, ha membe s o he US Cong ess p e e he ad an ages o co up ion o e he isk o
no being e-elec ed ollowing co up ion allega ions. Welch and Hibbing (1997) esea ched
US Cong ess membe s om 1982 o 1990, concluding ha co up ion ad e sely a ec s
he elec o al cycle, he eby c ea ing p ospec s o e-elec ion. Rundquis e al. (1977) used
a su ey expe imen o back up he esul s o his s udy. They ound ha o e s would
o e look ac s o co up ion and alue o he quali ies in a poli ician mo e. Con e sely,
Economies 2025,13, 151 8 o 29
Dimock and Jacobson (1995) examined he e ec s o he House o Rep esen a i es inancial
scandal on US o e s in 1992 and disco e ed ha people dis a o co up ion and will
impose penal ies o i . B ollo e al. (2013) in B azil co obo a ed di e se ou comes,
e ealing a posi i e co ela ion be ween inc eased co up ion oppo uni ies and he e-
elec ion o candida es. Fe az and Finan (2011) used he same se o da a om andom
p ocu emen audi s, showed ha o e s punish co up ion ha is shown. E idence sugges s
ha in poo coun ies and eme ging na ions, co up ion is nei he penalized h ough o ing
(Chang & Ke ,2017;Manze i & Wilson,2007) no leads o inc eased o e u nou (Klašnja,
2015;Klašnja e al.,2016). Based on hese esul s, he ollowing hypo hesis is p oposed:
Hypo hesis 4 (H4). The con ol o co up ion unde mines he p esence o poli ical budge cycles.
When incumben s a e mo i a ed o secu e suppo be o e elec ions, he budge cycle
phenomenon may no eme ge. I should be acknowledged ha oppo unis ic beha io is no
always p e e ed in na ions wi h a high deg ee o democ acy. Democ acy, by emphasizing
poli ical compe i ion, migh mi iga e he impac s o ad e se selec ion and in o ma ion
asymme y p oblems (Rogo ,1987;Ve gne,2009). The PBC is o en weake o nonexis en
in de eloped coun ies compa ed o de eloping coun ies (Shi & S ensson,2006;S eb e al.,
2009). I is also weake o nonexis en in coun ies wi h es ablished democ a ic amewo ks
compa ed o coun ies wi h new democ acies and in s ong democ acies compa ed o weak
democ acies (Gonzalez,2002). Nume ous schola ly wo ks highligh ha a lack o checks
and balances o signi ican ins i u ional limi a ions can es ic leade s’ (incumben s’)
inclina ion o manipula e he economy o poli ical gain. S eb e al. (2009) asse less
e idence o PBCs in a ious Eu opean democ acies, dis ega ding he signi icance o checks
and balances. We e alua e hese ins i u ional limi a ions and ind ha he ew es ain s
imposed on he execu i es gi e ise o a PBC phenomenon. Fu he mo e, i is de e mined
ha he inadequa e checks and balances sys em con ibu es o PBCs’ heigh ened in luence
in nume ous nascen democ acies o de eloping na ions. Based on hese esul s, he
ollowing hypo hesis is p oposed:
Hypo hesis 5 (H5). The deg ee o democ acy unde mines he p esence o poli ical budge cycles.
3. Me hodology and Da a Desc ip ion
3.1. Me hodology
Panel da a analysis o en encoun e s obs acles such as omi ed a iable bias, measu e-
men e o , unobse ed ime-in a ian and coun y-speci ic cha ac e is ics, au o-co ela ion,
and endogenei y o he p oblem o e e se causali y (Phillips & Sul,2007). The basic model
used in his s udy is he model de eloped by Klomp and De Haan (2013b), Shi and S ens-
son (2006), along wi h se e al modi ica ions o he model. The model is used o analyze he
ex en o he in luence o elec abili y on iscal pe o mance, including changes in budge
de ici s, go e nmen spending, and e enue. The speci ica ion o he empi ical model is
o mula ed as ollows:
Yij =α+βjYij −1+γeleci +δWik +µi+λ +εi (7)
whe e Y
ij
is he iscal indica o jin coun y i, yea , and Y
ij −1
is he lag o he iscal indica o
used o measu e he pe sis ence o poli ical dynamics on iscal a iables, W
ik
is a ec o
o con ol a iables o ec o o coun y-speci ic and ime- a ying socio-economic con ol
a iables, and elec
i
is a dummy a iable ha measu es he elec o al e ec including he
pe iod be o e he elec ion yea (p e-elec ion), du ing he elec ion yea (elec ion), and a e
Economies 2025,13, 151 15 o 29
s a ed, Hansen’s es add esses o e -iden i ica ion cons ain s (Ze gawu e al.,2020). Since
he budge a y ( iscal) indica o is a p ocess, he lagged o m o he a iable was included
in he models o allow o pa ial adjus men o he budge a y indica o o i s long- un
equilib ium alue. Consequen ly, he alue o he budge a y indica o in he p e ious
pe iod a ec s he cu en alue.
Table 3. Le in, Lin, and Chu panel uni oo es esul s.
Va iables T S a is ics p-Value
Budge balance −3.11 0.0000
Expendi u e −2.609 0.0000
Re enue −3.38 0.0000
Economic a ai s −2.99 0.0000
Social wel a e −3.46 0.0000
Public se ices −2.86 0.0000
Tax on income, p o i , and capi al gains −2.36 0.0000
Tax on goods and se ices −2.61 0.0000
Tax on in e na ional ade −2.52 0.0000
Unemploymen −2.16 0.0000
G ow h −4.08 0.0000
In la ion −3.97 0.0000
T ade openness −2.45 0.0000
S abili y o Poli ics −2.66 0.0000
Dependency a io −1.24 0.0000
Deb o Public −1.98 0.0100
Con ol o co up ion −2.33 0.0000
Democ acy le el −1.28 0.0400
4.3.1. Agg ega ed Budge s
The exis ence o elec ion-mo i a ed PBCs in o al spending, o al e enue, and de ici
is demons a ed in Table 4, which shows he es ima ion esul s o he eg ession model
using SYS-GMM. The A ellano–Bond (AB) es epo ed esul s ha he e is no se ial
co ela ion in he i s -di e enced e o s. Meanwhile, he ou pu o he Hansen es shows
no e idence o o e -iden i ying es ic ions being alid. Hence, hese esul s should be
p ese ed cau iously since ou model migh s ill ha e endogenei y p oblems. The ule o
humb o es ablishing such pe sis ence equi es he lagged alue coe icien o be a leas
0.80 (Adeleye e al.,2018). The es ima ion esul s in ha able explain ha he coe icien
o he dynamic e ec ( i s lag o he iscal indica o ) is equal o o g ea e han 0.80 and
s a is ically signi ican a he 1% le el. This means he pas iscal indica o le el is a s onge
de e minan o i s cu en le el. Fu he mo e, he dynamic e ec indica es ha he iscal
indica o is pa h dependen . This means ha he cu en iscal indica o in he sample
coun ies can p edic changes in ha indica o in he ollowing yea (Cho a eas e al.,2016;
Ga mann,2017).
Table 4p esen s he baseline esul s o es ima ing he elec o al cycle e ec s on iscal
indica o s. The e is su icien e idence o p o e he PBC hypo hesis ega ding expendi u e.
The es ima ion esul s o his s udy also explain ha bo h he elec ion yea and he p e-
elec ion yea ha e a signi ican posi i e e ec (a he 10% le el) on go e nmen spending o
0.83% and 0.1% o GDP, espec i ely. The in luence o he elec ion cycle on o al expendi u e
Economies 2025,13, 151 16 o 29
ein o ces he indings o s udies by Cho a eas e al. (2016), Shi and S ensson (2006), and
L. G. Veiga and Veiga (2007).
Table 4. Elec ion and iscal policy: basic esul s.
VARIABLES FISCAL VARIABLES SCALED TO GDP
BALANCE
EXPEND
REVENUE
ECOAFF
SOCWELF
PUBSERV
TAX GSF TAX IPCG TAX IT
Y −11.4 *** 0.85 *** 0.86 *** 0.84 *** 0.82 *** 0.8 *** 0.8 *** 0.9 *** 0.9 ***
(0.04) (0.10) (0.02) (0.10) (0.07) (0.10) (0.04) (0.08) (0.03)
Elec −1.23 0.83 * 0.6 * −0.41 0.36 * 0.12 −0.08 −0.2 −0.04
(0.60) (0.60) (0.40) (0.20) (0.20) (0.20) (0.30) (0.60) (0.20)
Elec_1 −0.4 0.1 * −0.57 0.71 ** 0.09 −0.39 * 0.6 *** 0.03 ** −0.2
(0.36) (0.90) (0.40) (0.30) (0.20) (0.20) (0.20) (0.37) (0.20)
Elec_2 0.13 −0.27 −0.07 −0.17 ** 0.03 0.07 0.2 ** −0.09 −0.09
(0.10) (0.10) (0.09) (0.07) (0.07) (0.10) (0.09) (0.20) (0.10)
Unem −0.09 ** 0.07 * 0.4 ** 0.05 0.02 −0.0007 −0.07 −0.1 *** −0.02
(0.04) (0.10) (0.04) (0.04) (0.03) (0.01) (0.07) (0.10) (0.06)
G o 0.2 *** −0.05 * 0.14 ** −0.004 −0.03 * −0.01 * −0.04 0.03 0.03
(0.04) (0.05) (0.02) (0.02) (0.01) (0.01) (0.04) (0.04) (0.02)
In 0.03 −0.02 −0.03 0.02 −0.006 0.008 −0.06 *** −0.1 0.07 ***
(0.02) (0.03) (0.02) (0.02) (0.01) (0.01) (0.02) (0.03) (0.02)
o 0.01 ** 0.003 * 0.01 * 0.01 −0.005 −0.002 0.02 0.02 −0.01
(0.01) (0.02) (0.01) (0.01) (0.00) (0.00) (0.01) (0.02) (0.01)
Pols −0.63 ** 0.5 1.03 *** 0.1 0.3 * 0.19 0.5 0.3 0.4 *
(0.30) (0.60) (0.40) (0.30) (0.10) (0.10) (0.50) (1.01) (0.30)
Deb −0.01 * 0.001 −0.001 −0.02 0.004 0.004 −0.002 −0.004 0.007
(0.01) (0.02) (0.01) (0.03) (0.00) (0.00) (0.01) (0.01) (0.01)
Dep −0.01 −0.045 −0.096 0.08 ** −0.02 * −0.003 −0.01 −0.02 0.26 **
(0.01) (0.03) (0.05) (0.03) (0.01) (0.01) (0.02) (0.03) (0.13)
Yea COVID −0.79 ** 0.6 −0.11 0.5 ** −0.19 0.07 0.6 *** 0.01 0.015
(0.30) (0.50) (0.10) (0.20) (0.10) (0.10) (0.20) (0.50) (0.10)
Cons an −1.5 * 4.89 * 8.6 *** −4.7 ** 2.74 ** 1.24 4.7 *** 4.36 0.16
(0.90) (2.30) (0.86) (1.80) (1.20) (1.04) (1.20) (3.60) (0.30)
Obse a ion 672 673 673 692 692 692 614 581 564
Time E ec Y Y Y Y Y Y Y Y Y
Num o Coun ies 34 34 34 34 34 34 34 34 34
Num o
Ins umen s 13 13 30 22 14 14 30 23 30
AR (2) 0.815 0.673 0.555 0.529 0.729 0.613 0.112 0.465 0.132
Hansen J es 0.312 0.211 0.204 0.207 0.89 0.759 0.262 0.253 0.292
No e: S anda d e o s in pa en heses. *** p< 0.01,** p< 0.05, * p< 0.1; Expend = Expendi u e To al; Re enue = Re -
enue To al; Balance = budge balance; EcoA = economic a ai s spending; SocWel = social wel a e spending;
PubSe = public se ices spending; ax_gs = ax on goods and se ices; ax_i = ax on in e na ional ade;
ax_ipcg = ax on income; in = in la ion; g o = gdp g ow h; unem = unemploymen a e; dep = dependency a io;
o = ade openness; pols = poli ical s abili y; deb = go e nmen deb .
Does he inc ease in go e nmen spending du ing elec ion pe iods p o e he con inui y
o he PBC? This can be add essed by obse ing he da a p ocessing esul s in Table 5
(column E1, in e ac ion ow elecx ecand), which shows ha when he incumben uns o
elec ion again, o al spending in he elec ion yea is on a e age 2.17% highe compa ed
o when he incumben does no un o elec ion again o in pe iods wi hou an elec ion.
The illus a ion in column E2 also con eys a simila meaning: when he incumben uns
again, o al spending in he p e-elec ion yea is, on a e age, 0.93% highe han when he
incumben does no un again o in pe iods wi hou an elec ion. Fu he mo e, i is also
shown ha he a e age pe cen age change in spending du ing he elec ion yea is g ea e
han be o e.
Economies 2025,13, 151 17 o 29
Table 5. The elec ion cycle and he ole o co up ion con ol and democ acy.
VARIABLES
FISCAL VARIABLES SCALED TO GDP
BALANCE EXPEND REVENUE
B1 B2 B3 B4 B5 B6 E1 E2 E3 E4 E5 E6 R1 R2 R3 R4 R5 R6
∆Y 1
0.406 ***
0.39 ***
0.421 ***
0.4 ***
0.42 ***
0.45 ***
0.57 *** 0.58 ***
0.6 ***
0.54 *** 0.57 *** 0.57 ***
0.4 *** 0.35 ** 0.32 ** 0.31 * 0.32 * 0.31 *
(0.04) (0.05) (0.04) (0.05) (0.04) (0.01) (0.03) (0.03) (0.07) (0.06) (0.06) (0.06) (0.08) (0.16) (0.16) (0.16) (0.16) (0.17)
Elec 1.49 * 2.32 ** 0.59
1.72 *** 4.34 ***
1.44 0.63 0.22 2.007 2.04
(0.74) (01.15) (01.85) (0.4) (0.94) (01.35) (0.7) (0.5) (01.8) (02.6)
Elec1 0.38 0.207 0.09 0.79 0.89 1.5 0.79 0.74
(0.50) (0.380) (0.30) (0.50) (0.80) (01.30) (0.990) (0.90)
Recand 0.56 0.68 1.027 0.7 ** 0.4 2.6 **
(0.80) (0.60) (0.70) (0.30) (0.80) (01.30)
elec x ecand 0.16 0.62 2.17 * 0.93 ** 2.2 3.4
(1.41) (1.19) (1.08) (0.40) (1.6) (2.05)
Cco 1.126 ** 1.401 ** 0.8 1.6 0.17 0.027
(0.44) (0.52) (0.9) (0.96) (1.4) (1.4)
elec x cco 1.7 1.001 *
3.51 *** 1.53 ***
1.23 0.87
(1.308) (0.530) (1.040) (0.40) (1.990) (0.80)
demo
0.26 ***
0.285 ***
0.37 0.42 * 0.2 0.25
(0.09) (0.07) (0.23) (0.22) (0.42) (0.4)
elec x demo 0.358 0.18 *** 0.69 **
0.39 ***
0.65 0.26
(0.40) (0.060) (0.30) (0.10) (0.620) (0.180)
Cons an 1.65 * 1.51 * 3.16 *** 3.37 *** 0.75 0.65
11.1 *** 11.1 *** 7.15 *** 9.24 ***
4.8 ** 4.64 ** 10.5 ** 15.98
** 9.68 ** 10.1 **
8.41 ***
8.5 ***
(0.8) (0.88) (0.05) (0.6) (0.9) (0.6) (0.95) (0.88) (1.8) (1.76) (2.01) (2.01) (4.08) (5.4) (3.6) (3.75) (2.55) (2.5)
Obse a ion 672 672 672 672 672 672 673 673 673 673 673 673 673 673 673 673 673
Num o Coun ies 34 34 34 34 34 34 34 34 34 34 34 34 34 34 34 34 34 34
Num o Ins umen s 14 14 13 13 13 22 33 33 22 22 22 22 23 14 13 13 13 13
AR (1) 0.006 0.007 0.006 0.006 0.006 0.011 0.062 0.067 0.031 0.061 0.035 0.037 0.034 0.03 0.046 0.049 0.047 0.049
AR (2) 0.766 0.991 0.619 0.956 0.726 0.891 0.541 0.672 0.473 0.498 0.5 0.501 0.576 0.643 0.632 0.702 0.582 0.575
Hansen Tes 0.308 0.300 0.302 0.304 0.299 0.309 0.28 0.202 0.18 0.189 0.106 0.105 0.174 0.938 0.842 0.832 0.874 0.86
No e: S anda d e o s in pa en heses. *** p< 0.01,** p< 0.05, * p< 0.1; Expend = Expendi u e Go e nmen To al; Re enue = Re enue To al; Balance = budge balance; cco = con ol o
co up ion; demo = democ acy index; ecand = unning o e-elec ion = incumben ; ele* ecand = in e ac ion o elec ion and ecandida e; ele*cco = in e ac ion o elec ion and con ol o
co up ion; ele*demo = in e ac ion o elec ion and democ acy.
Economies 2025,13, 151 18 o 29
The es ima ion esul s o his s udy also explain ha elec ion yea s posi i ely impac
o al e enue by 0.6% o GDP. Rei e a ed in he ou pu o Table 5, column R1 shows ha
when incumben s pa icipa e again in he elec ions, o al e enue in he elec ion yea is
2.2% highe han when incumben s do no pa icipa e in he elec ions o yea s wi hou
elec ions. The posi i e impac o elec ions on o al e enue ein o ces he indings o s udies
by Pe sson and Tabellini (2004), B ende and D azen (2005), and P icha d (2018). The
e enue analysis in his s udy aimed o es ablish he sou ce o unding i he e was an
inc ease in spending in an elec ion yea . When he e is excessi e o al spending in an
elec ion yea , ixed e enue and de ici s a e highe . This condi ion allows he inancing o
inc eased spending o be ob ained om o he sou ces, such as bo owing.
Empi ical e idence ela ed o he budge balance indica o shows ha elec ion yea s
ha m he budge balance, al hough no signi ican ly. Howe e , his is insigni ican e en
when conside ing incumben s unning again in he elec ions. we can obse e in Table 5
columns B1, B2, and he ow o elecx ecand. The es ima ion esul s show no change in
he budge balance, whe he conside ing he incumben o no . The budge cycle has a
ela i ely small impac on economic condi ions, so achie ing elec o al goals h ough iscal
policy is only done by a ew coun ies (Klomp & De Haan,2013a). Ou indings sugges ha
he inc ease in e enue co e s he inc eased spending, so i will no signi ican ly impac
he budge de ici . The e idence is consis en wi h Ve gne (2009), Klein and Saku ai (2015),
and Ka simi and Sa an ides (2012), who a gue ha he budge de ici emains unchanged.
Rega ding he con ol a iables conside ed in his s udy, ou a iables gene ally
signi ican ly impac he agg ega e iscal indica o s: unemploymen , economic g ow h, ade
openness, and he coun y’s poli ical s abili y. The con ol a iables used in he es ima ion
impac ed he budge a y decision di e en ly. The highe he unemploymen a e, he mo e
signi ican ly i impac s he inc ease in o al expendi u e and e enue, bu con e sely, i
esul s in a lowe budge balance (inc eased de ici ). The inc easing economic g ow h a e
posi i ely a ec s income and budge balance bu nega i ely impac s expendi u e. The
inc easing poli ical s abili y esul s in highe go e nmen e enue, bu he budge de ici
also inc eases. Fu he mo e, he highe he le el o ade openness, he mo e i will inc ease
o al expendi u e, e enue, and budge balance.
4.3.2. Disagg ega ed Budge s: Expendi u e Componen
In Table 4, column 4, p e-elec ion and pos -elec ion signi ican ly impac he economic
a ai s expendi u e componen . Howe e , i does no ha e a signi ican impac in he
elec ion yea . The p e-elec ion pe iod posi i ely impac s he magni ude o economic
a ai s expendi u e, while he pos -elec ion pe iod has a nega i e impac . Economic a ai s
expendi u e inc eased by 0.71% one yea be o e he elec ion, while one yea a e he
elec ion, i dec eased by 0.17% ela i e o GDP. Economic a ai s spending is bene icial
o inc easing access o economic ac i i ies, p o iding in as uc u e o suppo economic
ac i i ies, and accele a ing economic g ow h. The inc ease in spending ou pu can di ec ly
impac he communi y’s wel a e by enhancing economic alue added, he eby a ac ing
o e s o he incumben ’s capabili ies. The incumben go e nmen inc eased economic
a ai s spending in he p e-elec ion pe iod o expand capi al expendi u e o gain an elec o al
ad an age. This esul is consis en wi h he wo k o Bon a i and Fo ni (2019), Klein and
Saku ai (2015), Lewis (2018), and L. G. Veiga and Veiga (2007).
On he o he hand, economic a ai s spending dec eases a e he elec ion. This
condi ion aligns wi h he classic PBC phenomenon, which holds ha incumben s end
o educe public spending o ec i y he budge de ici caused by go e nmen spending
leading up o he elec ion. This esul is consis en wi h Cas o and Ma ins (2013) o
Economies 2025,13, 151 19 o 29
he municipali ies o he Po ugal egion, whe e he e was an inc ease in economic a ai s
spending in he yea be o e he elec ion and a dec ease in spending a e he elec ion.
Social wel a e spending cons i u es he la ges po ion o o al go e nmen expendi u e.
This expendi u e includes heal h, educa ion, and social p o ec ion spending, which a e
basic needs o imp o ing he quali y o human esou ces. F om Table 4, column 5, i can be
seen ha in he elec ion yea , he e is a posi i e impac on social spending, o in o he wo ds,
he e is an inc ease in social wel a e spending o 0.36% o GDP. This condi ion indica es
an inc ease in social unding du ing he elec ion pe iod o a ac o e s, especially hose
wi h low incomes (Nguyen e al.,2022a;Ve gne,2009). Signi ican ly, he elec ion pe iod
ha posi i ely impac s social spending has a g ea e in luence han he p e-elec ion pe iod
(al hough insigni ican ). Social spending in he o m o social secu i y is o en conside ed
a no- ime-lag policy, so his spending can di ec ly impac inc easing he communi y’s
disposable income. The e o e, he go e nmen ends o s eng hen social spending du ing
elec ion pe iods compa ed o p e-elec ion pe iods. The esul is qui e consis en wi h hose
ob ained p e iously (Nguyen & T an,2023;Schneide ,2010).
Las ly, public se ice expendi u es declined by 0.39% o GDP in he p e-elec ion pe iod.
Meanwhile, he cycle du ing he elec ion o pos -elec ion pe iod does no signi ican ly
a ec his ype o expendi u e. This does no con i m he incumben go e nmen ’s desi e
o enhance elec o al ad an age in he p e-elec ion pe iod. Public deb ansac ions a e a
majo pa o public se ice expendi u es ha pe iodically ha e less impac on he poli ical
cycle (Nguyen & T an,2023).
Based on he analysis abo e ega ding changes in go e nmen expendi u e compo-
nen s du ing he elec ion pe iod, expendi u es on economic a ai s and social wel a e a e
ela i ely mo e dominan in o al expendi u e. This ac aligns wi h Shi and S ensson’s
(2006) and Lewis’s (2018) indings. The incumben go e nmen is mo e likely o p io i ize
ce ain ypes o expendi u es, especially on public p ojec s wi h high isibili y, o es ablish
he sus ainabili y o i s compe ence in he eyes o po en ial o e s. Public spending on
educa ion and heal h also becomes a ocus o incumben s o gain mo e a en ion om
po en ial o e s du ing he elec ion pe iod.
4.3.3. Disagg ega ed Budge s: Re enue Componen
The es ima ion esul s o he poli ical cycle e ec s on go e nmen e enue, pa icula ly
ax e enue, a e shown in Table 4, column 7. In he ax on income, p o i , and capi al
gains ca ego y, he one yea be o e he elec ion (p e-elec ion) and a e he elec ion has a
signi ican ly posi i e impac on ax e enue. This means ha in he p e-elec ion pe iod,
he e enue om ax on income, p o i , and capi al gains inc eased by 0.6% ela i e o
GDP, and in he pos -elec ion pe iod, his di ec e enue also inc eased by 0.2%, unlike he
poli ical cycle du ing he elec ion pe iod, which does no signi ican ly impac he e enue
om ax on income, p o i , and capi al gains.
Nex , he illus a ion in columns 8–9 shows ha he elec ion pe iod’s e ec on axes on
goods and se ices and axes on in e na ional ade gene ally does no ha e a signi ican
impac . Excep o he one yea be o e he elec ion, which posi i ely a ec s he e enue
om he ax on goods and se ices, amoun ing o 0.03% o GDP a a signi icance le el o
10%, he es ha e no e ec a all. In gene al, i can be said ha di ec axes ha e a ai ly
s ong esponse du ing elec ion pe iods.
In gene al, di ec axes ha e a easonably s ong esponse du ing elec ion pe iods.
This esul is no in line wi h he iews o D azen and Esla a (2010), Eh ha (2013), and
Block (2001). The inc ease in di ec axes du ing he elec ion pe iod, especially be o e
he elec ion, can educe he go e nmen ’s bu den in an icipa ing he wo sening budge
de ici , especially wi h he inc easing go e nmen spending. The policy was implemen ed
Economies 2025,13, 151 20 o 29
o accumula e la ge inancial esou ces o main ain he poli ical s eng h o he incumben s.
The esul s o his analysis suppo P icha d’s s udy (2015).
4.3.4. Condi ional Fac o : Role o Co up ion Con ol and Democ acy
Co up ion, o mo e gene ally de ined as anspa ency and he quali y o go e nance,
is a c ucial de e minan o he exis ence o PBCs (Al & Lassen,2006;Klomp & De Haan,
2013b;Ve gne,2009). In ui i ely, as he elec ion pe iod app oaches, i can in luence co -
up ion beha io and impac iscal condi ions. I o e s app ecia e poli icians’ in eg i y o
abili y o comba co up ion, incumben s a e likely o minimize co up ion h ough a ious
an i-co up ion ac i i ies o gain mo e o es (Khemani,2004;Mi ono & Zhu a skaya,
2016). Mi ono and Zhu a skaya (2016) ound ano he mechanism ela ed o he ela ion-
ship be ween he poli ical cycle and co up ion beha io , namely he desi e o poli icians o
engage in co up ion be o e he elec ion pe iod o ob ain la ge campaign unds.
Table 5shows co up ion con ol’s ole in he ela ionship be ween he elec ion pe iod
and go e nmen iscal indica o s, indica ing a signi ican nega i e coe icien (columns
E3–E4). This means ha he p esence o s ong co up ion con ol can weaken he e ec s
o p e-elec ion and elec ion on go e nmen spending. High le els o co up ion con ol
can p e en poli icians om engaging in co up beha io by exploi ing he go e nmen
budge o pe sonal o pa y in e es s. The beha io shows manipula ion ca ied ou
by he incumben go e nmen , and o e s impose penal ies o he inc easing budge
de ici s (B ende & D azen,2008). The esul s o his s udy suppo he indings o Mau o
(1998), and Pie skalla and Sacks (2018), who gene ally a gue ha incumben s end o
be dissuaded om engaging in go e nmen unding p ojec s due o he imposi ion o
poli ically mo i a ed co up ion in es iga ions.
Using democ acy-le el da a based on he Economis In elligence Uni (EIU) da abase,
we in e ac democ acy wi h elec o al a iables o bo h elec ions and p e-elec ions. Table 5
(columns E5–E6) shows he ole o he le el o democ acy in he ela ionship be ween
he elec ion pe iod and go e nmen iscal indica o s, indica ing a signi ican ly nega i e
coe icien . This means ha he magni ude o he e ec o poli ical budge cycle, bo h
du ing he p e-elec ion and elec ion pe iods, on go e nmen spending can be weakened
by he p esence o high le els o democ acy, i mly con i ming ha democ acy educes
oppo unis ic beha io be o e and du ing elec ion yea s. The esul s o his analysis a e
ele an o he indings o Ve gne (2009), B ende and D azen (2005), and Gonzalez (2002).
Oppo unis ic beha io is no a choice in coun ies wi h high democ acy because he
p inciple p io i izes genuine poli ical compe i ion.
4.3.5. Sensi i i y Analysis
This sec ion explains he obus ness es esul s by e-es ima ing he main esea ch
a iables. Fi s , he es ima ion was epe o med using disagg ega ed spending da a o
each ca ego y agains o al expendi u e and e enue da a o each ca ego y agains o al
ax e enue (income ax). Appendix B.2 illus a es he in luence o p e- and pos -elec ion
pe iods on he changes in economic a ai s spending ela i e o o al spending. Simila ly,
public se ices expendi u es also expe ienced signi ican changes due o he elec ion pe iod.
The second es ima ion uses al e na i e con ol a iables (as p oposed by Ka simi
& Sa an ides, 2012). The a iables in ques ion a e he popula ion a e (%), GDP pe
capi a, ax e enue, and he popula ion aged 15–64. The es ima ion esul s a e shown in
Appendix B.3. The budge balance condi ion did no change, bu o al expendi u es and
e enues expe ienced signi ican changes du ing he elec ion pe iod.
Finally, a bina y dummy elec ion is app op ia e o he pe iod du ing he elec ion,
be o e, o a e . Appendix B.4 shows he in luence o he elec ion pe iod on changes in
Economies 2025,13, 151 21 o 29
go e nmen expendi u e and e enue le els. Like he i s es ima ion esul (basic esul ),
economic a ai s expendi u es domina e compa ed o social wel a e o public se ices
expendi u es. The inc eased economic a ai s spending du ing he elec ion pe iod is
accompanied by dec eased public se ices spending. Fu he mo e, di ec axes such as ax
on income, p o i , and capi al gains a e mo e dominan compa ed o indi ec axes ( ax on
goods and se ices, in e na ional ade).
5. Concluding Rema ks and Policy Implica ions
In ecen yea s, he elec o al cycle has emained a ho opic o discussion in a ious
coun ies, especially de eloping ones. The ex an li e a u e assumes ha he elec o al
cycle has a wide- anging impac on he go e nmen ’s iscal condi ion. Howe e , he
empi ical e idence on he iscal policy–elec ion pe iod nexus has no only p oduced mixed
esul s, bu also he poli ical budge cycle’s consequences o a ious c i ical, agg ega e, and
disagg ega e iscal indica o s in middle-income coun ies a e o en o e looked. Agg ega e
iscal indica o s include budge balance, expendi u es, and o al e enue.
Meanwhile, disagg ega ed iscal indica o s a e limi ed o economic a ai s, social
wel a e, and public se ice expendi u e, which accoun o 40% o o al expendi u e. The
PBC’s magni ude is explained h ough ins i u ional quali y measu es, namely con ol
o co up ion and he le el o democ acy. The ollowing esul s ha e been es ablished
by applying a mo e obus econome ic echnique ( wo-way sys em GMM) o con ol
o po en ial endogenei y. In he indings and discussion o he analysis, ou hypo hesis
was con i med ha incumben s unning again in he elec ions will manipula e he public
budge o e ec i ely build public pe cep ion and be con incing, he eby s eng hening he
p obabili y o winning he elec ions.
The cause o he poli ical budge cycle in se e al middle-income coun ies eme ged
in e ms o o al expendi u e and e enue, while he budge de ici was no a ec ed a all.
Inc eased go e nmen spending due o elec ions is ollowed by inc eased e enue, educing
he budge de ici . The concep o he classic poli ical budge cycle unde sco es he endency
o incumben go e nmen s o expand public spending bo h be o e and du ing elec ion
yea s o c ea e be e economic g ow h, he eby enhancing he go e nmen ’s elec o al
ad an age. Subsequen ly, a e he elec ion yea , he magni ude o public spending will
dec ease o ec i y he budge imbalance caused by he elec ion.
Rega ding he composi ion o public spending, he incumben go e nmen bene i s
om inc eased spending on economic a ai s and social wel a e. Social wel a e expendi u e
inc eased du ing he elec ion yea , while economic a ai s expendi u e inc eased be o e and
a e he elec ion. On he o he hand, he e is a dec ease in public se ices expendi u e due
o he elec ion. Public spending in he o m o economic a ai s has g ea e powe compa ed
o o he o ms o spending. The dimension o such spending can p o ide ad an ages o
incumben s ela ed o a ious high- isibili y p ojec s and become an a ac ion o o e s. In
o he wo ds, capi al expendi u es domina e he elec o al cycle mo e han cu en expendi u es.
The budge de ici emains unchanged, and he e is a shi in he composi ion o expendi u es.
Rega ding he magni ude o ax e enue due o elec ions, axes on income, p o i , and
capi al gains ha e a mo e subs an ial in luence (especially be o e and a e he elec ion) han
axes on goods and se ices o in e na ional ade. In o he wo ds, di ec ax con ibu ions
subs an ially in luence he poli ical budge cycle mo e han indi ec axes.
Nex , he magni ude o he PBC can be de ec ed h ough he ole o co up ion con ol
and he le el o democ acy. The mo e capable he go e nmen o ins i u ion is o con olling
co up beha io , he lowe he deg ee o budge manipula ion in spending and e enue in
an elec ion yea is ound o be. Fu he mo e, he mo e es ablished he le el o democ acy,
Economies 2025,13, 151 22 o 29
he lowe he occu ence o budge manipula ion, whe he ela ed o expendi u es o
e enues, du ing elec ion pe iods.
As is known, such oppo unis ic beha io o en nega i ely impac s social wel a e.
The e o e, policymake s in middle-income coun ies should be awa e o and mo e igilan
agains he in luence o he incumben go e nmen ’s oppo unis ic beha io in he lead-up
o he elec ion pe iod. Fu he mo e, he exis ence o ins i u ions h ough co up ion con ol
and democ acy can con ibu e o weakening he e ec s o he poli ical budge cycle in he
a o emen ioned coun ies.
The pape is no wi hou limi a ions. Se e al o he de e mining ac o s play a ole in
he change in he magni ude o he PBC. The quali y o ins i u ions can also be explained
by o he indica o s such as he ule o law, egula o y quali y, and oice and accoun abili y.
T anspa ency o in o ma ion can also play a ole in unde s anding he p esence o absence
o budge manipula ion du ing elec ion pe iods h ough he abili y o mass media o
accommoda e he in o ma ion needs o o e s, whe he ela ed o he go e nmen budge
o he achie emen s o leade s who a e unning again in he p esiden ial and head o
go e nmen elec ions. In addi ion, his s udy adop s a me hodology ha conside s he
en i e sample o he obse ed coun ies as a single uni . The e o e, u he s udies need
o p o e he exis ence o absence o budge manipula ion du ing elec ion pe iods by
di e en ia ing he classi ica ion o middle-income coun ies mo e speci ically in o lowe -
and uppe -middle-income coun ies.
Au ho Con ibu ions: Concep ualiza ion, S.F., T.W. and A.F.; Me hodology, S.F. and A.F.; So wa e, S.F.;
Valida ion, S.F., T.W. and A.F.; Fo mal Analysis, S.F., T.W. and A.F.; In es iga ion, T.W. and A.F.; Resou ces,
S.F.; Da a Cu a ion, S.F.; W i ing—O iginal D a P epa a ion, S.F.; W i ing—Re iew and Edi ing, T.W.
and A.F.; Visualiza ion, S.F.; Supe ision, T.W. and A.F.; P ojec Adminis a ion, S.F. and A.F.; Funding
Acquisi ion, S.F. All au ho s ha e ead and ag eed o he published e sion o he manusc ip .
Funding: This esea ch ecei ed no ex e nal unding.
Ins i u ional Re iew Boa d S a emen : No applicable.
In o med Consen S a emen : No applicable.
Da a A ailabili y S a emen : The da a p esen ed in his s udy a e a ailable on eques om he
co esponding au ho s.
Con lic s o In e es : The au ho s ha e no con lic s o in e es o decla e.
Appendix A
Appendix A.1. Middle-Income Coun ies and Incumben P esiden s
Aze baijan (Ilham Aliye ), Bela us (Aleksand Lukashenko), Benin (Thomas Yayi
Boni and Pa ice Talon), Boli ia (Juan E o Mo ales Ayma), B azil (Luiz Inacio Lula Da
Sil a), Came oon (Paul Biya), Colombia (Al a o U ibe Velez and Juan Manuel San-
os Calde on), Como os (Azali Assoumani), Congo (Joseph Kabila), Cos a Rica, Co e
d’I oi e (Alassane Qua a a), Dominican (Leonel Fe nandes and Danilo Medina Sanchez),
Ecuado (Ra ael Co ea), El Sa ado , Ghana (John Agyekum Ku uo , Nana Aku o Addo),
Gua emala (Jimmy E nes o Mo ales), Guinea (Lansana Con e, Alpha Conde), Hondu as
(Juan O lando He nandez Al a ado), Indonesia (Susilo Bambang Yudoyono, Jokowi), I an
(M. Kha am, Mahmud Ahmadinejad, Hassan Fe eidun Rouhani), Kenya (Mwai Kibaki,
Uhu u Kenya a), Mexico, Namibia (Hi ikepunye Pohamba, Hage Geingob), Nica agua
(Daniel O ega Saa ed a), Nige ia (Muhammadu Buha i), Pa aguay, Pe u (Albe o Kenyo
Fujimo i), Phillipines (Glo ia Macapagal), Russia (Vladimi Pu in), Tanzania (Benjamin
Mkapa, Jakaya M iso), Tunisia (Zainal Abidin bin Ali), Tu kmenis an (Gu banguly Be dy-
muhammedo ), Zambia, Zimbabwe (Robe Gab iel Mugabe, Emme son Mnangagwa).
Economies 2025,13, 151 23 o 29
Appendix B
Appendix B.1. Co ela ion Ma ix
Va iables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21) (22)
(1) budge 1.00
(2) go exp −0.17
*1.00
(3) e enue −0.14 0.35 * 1.00
(4) yea co −0.05 −0.07 −0.23
*1.00
(5) gdpg 0.21 * −0.27
*−0.08 0.01 1.00
(6) in 0.04 0.13 −0.05 0.09 0.04 1.00
(7) dep −0.12 −0.18
*−0.01 −0.36
*0.08 −0.05 1.00
(8) unem −0.16
*0.41 * 0.49 * −0.16
*−0.10 −0.10 −0.01 1.00
(9) o 0.08 0.07 0.25 * −0.12 0.06 0.03 −0.16
*−0.06 1.00
(10) pols −0.17
*−0.04 0.40 * 0.11 −0.08 −0.09 −0.01 0.11 0.26 * 1.00
(11) deb −0.23
*0.19 * 0.25 * 0.01 −0.24
*−0.10 −0.16
*0.02 0.11 0.23 * 1.00
(12) cco −0.25
*0.08 0.54 * 0.25 * −0.06 −0.10 −0.09 0.32 * 0.29 * 0.50 * 0.21 * 1.00
(13) demo 0.01 0.05 0.13 0.25 * −0.02 0.26 * 0.06 −0.05 −0.04 0.28 * 0.06 −0.04 1.00
(14) elec −0.28
*−0.12 0.27 * 0.15 * −0.06 −0.29
*−0.13 0.21 * −0.04 0.36 * 0.38 * 0.57 * −0.29
*1.00
(15) p eelec 0.00 0.03 −0.01 0.00 0.04 −0.06 −0.03 0.00 −0.01 0.00 −0.03 −0.02 0.01 −0.01 1.00
(16) pos elec 0.09 −0.02 0.03 0.00 0.04 −0.06 −0.02 0.03 0.01 −0.02 0.03 0.00 0.00 0.00 −0.27
*1.00
(17) axipc −0.04 0.05 −0.04 0.01 −0.19
*0.05 −0.01 0.00 −0.02 0.02 0.02 0.00 0.01 −0.02 −0.26
*
−0.26
*1.00
(18) ax gs −0.04 0.05 −0.13 0.22 * −0.02 0.30 * 0.04 −0.20
*
−0.30
*−0.02 −0.16
*−0.02 0.19 * −0.07 −0.01 −0.03 0.01 1.00
(19) ax i 0.11 0.27 * 0.08 −0.05 −0.05 0.00 −0.08 0.03 0.20 * −0.03 0.06 −0.05 0.05 −0.18
*0.01 0.01 −
0.03
−0.20 * 1.00
(20) socWel −0.32
*0.52 * 0.32 * −0.02 −0.13 −0.19
*0.01 0.43 * −0.18
*0.09 0.24 * 0.23 * −0.13 0.25 * 0.02 −0.01 0.07 −0.03 0.00 1.00
(21) pubse −0.14 0.47 * 0.41 * 0.02 −0.23
*−0.02 −0.20
*0.46 * 0.07 0.03 0.39 * 0.30 * 0.05 0.26 * −0.02 0.00 0.01 −0.16 * 0.00 0.25 * 1.00
(22) ecoa −0.28
*0.28 * 0.37 * −0.18
*−0.05 −0.17
*0.23 * 0.26 * 0.09 0.19 * 0.26 * 0.23 * 0.08 0.25 * −0.02 0.02 0.02 −0.07 0.22 * 0.66 * 0.15 * 1.00
No e: Signi icance alue * p< 0.1.
Economies 2025,13, 151 24 o 29
Appendix B.2. Robus ness: Disagg ega e Fiscal Scaled
VARIABLES
SCALED TO TOTAL SPENDING SCALED TO TOTAL REVENUE
ECOAFF SOCWELF PUBSERV TAX_IPCG TAX_GSF TAX_IT
Y −10.57 *** 0.79 *** 0.86 *** 0.67 *** 0.86 *** 0.9 ***
(0.01) (0.02) (0.03) (0.09) (0.09) (0.03)
Elec −0.02 0.16 −0.005 −0.26 0.12 * −0.07
(0.1) (0.1) (0.2) (0.6) (0.6) (0.2)
Elec1 0.199 * 0.16 −0.37 ** 0.78 ** −0.92 −0.26
(0.11) (0.1) (0.1) (0.4) (0.4) (0.2)
Elec2 −0.15 ** −0.01 −0.06 −0.24 * −0.2 −0.1
(0.03) (0.03) (0.08) (0.2) (0.2) (0.1)
Unem 0.03 *** 0.05 ** 0.07 ** −0.07 0.11 0.01
(0.01) (0.01) (0.03) (0.1) (0.2) (0.07)
G o 0.01 ** −0.03 ** 0.001 0.06 0.1 ** 0.03
(0.004) (0.008) (0.009) (0.080) (0.040) (0.020)
In 0.006 −0.01 ** 0.009 ** −0.07 * −0.11 * −0.05 ***
(0.004) (0.005) (0.004) (0.040) (0.020) (0.010)
o 0.01 ** 0.0007 0.001 −0.005 0.004 0.01
(0.002) (0.002) (0.003) (0.020) (0.020) (0.010)
Pols −0.08 * 0.3 *** −0.28 1.68 * 0.6 0.4 **
(0.04) (0.1) (0.2) (0.9) (01.02) (0.2)
Deb −0.004 ** 0.0006 0.01 ** 0.02 0.01 0.007 *
(0.002) (0.002) (0.004) (0.020) (0.020) (0.007)
Dep −0.18 −0.2 −0.01 −0.03 −0.02 −0.03
(0.06) (0.02) (0.01) (0.02) (0.01) (0.01)
Yea COVID −0.18 ** −0.08 0.081 0.88 * 0.67 0.019
(0.05) (0.06) (0.1) (0.5) (0.4) (0.16)
Cons an 0.4 ** 1.23 *** 0.28 8.78 ** 2.62 0.53 **
(0.17) (0.23) (0.3) (3.04) (3.3) (0.3)
Obse a ion 692 692 656 564 561 614
Num o Coun ies 34 34 34 34 34 34
Num o Ins umen s 33 33 28 28 28 13
AR (2) 0.642 0.894 0.641 0.113 0.411 0.133
Hansen J es 0.218 0.47 0.207 0.155 0.172 0.294
No e: S anda d e o s in pa en heses. *** p< 0.01,** p< 0.05, * p< 0.1;
Expend = Expendi u e Go e nmen To al; Re enue = Re enue To al; Balance = budge
balance; EcoA = economic a ai s spending; SocWel = social wel a e spending;
PubSe = public se ices spending; ax_gs = ax on goods and se ices; ax_i = ax on
in e na ional ade; ax_ipcg = ax on income; in = in la ion; g o = gdp g ow h;
unem = unemploymen a e; dep = dependency a io; o = ade openness; pols = poli ical
s abili y; deb = go e nmen deb .
