Fiscal Policy over the Election Cycle in Low-Income Countries

Author/Editor: Christian Ebeke ; Dilan Ölcer
Publication Date: June 26, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: Focusing on Low-Income Countries, we investigate the behavior of fiscal variables during and after elections. The results indicate that during election years, government consumption significantly increases and leads to higher fiscal deficits. During the two years following elections, the fiscal adjustment takes the form of increased revenue mobilization in trade taxes and cuts to government investment, with no significant cuts in government consumption. Using a new dataset on national fiscal rules and IMF programs, we find that both the presence of fiscal rules and IMF programs help dampen the magnitude of the political budget cycle in LICs. We conclude that elections not only imply a macroeconomic cost when they take place but also trigger a painful fiscal adjustment in which public investment is largely sacrificed.
Series: Working Paper No. 13/153
Subject(s): Fiscal policy | Political economy | Business cycles | Low-income developing countries

Publication Date: June 26, 2013
ISBN/ISSN: 9781475588514/1018-5941 Format: Paper
Stock No: WPIEA2013153 Pages: 24
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