Political Business Cycles and Expenditure Policies in Developing Countries
IMF Working Papers, October 1, 1994
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- Political Business Cycles and Expenditure Policies in Developing Countries
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Bibliographic details
- Authors: Ludger Schuknecht
- Published: October 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451854312.001
Summary of findings
- Study covers fiscal policies around elections in 35 developing countries.
- Governments attempt to improve reelection prospects using expansionary expenditure policies.
- Rising fiscal deficits before elections are followed by fiscal consolidation afterwards.
- Fiscal cycles are particularly evident in countries that are less trade-oriented or that pursue fixed exchange rate policies.
- Certain IMF-supported programs (SAF/ESAF and EFF arrangements) contribute to fiscal stabilization, but they do not appear to affect the incidence of fiscal cycles.
- Conclusion: policy advice and macroeconomic projections should not overlook election constraints; political feasibility of reforms should be strengthened particularly before elections.
Empirical patterns and scope
- Sample: 35 developing countries.
- Observable pattern: pre-election expansionary expenditures → post-election fiscal consolidation.
- Amplifying factors: lower trade orientation; fixed exchange rate regimes.
Role of IMF programs
- Programs identified: SAF/ESAF and EFF arrangements.
- Effect: contribute to fiscal stabilization.
- Limitation: do not appear to change the incidence of election-related fiscal cycles.
Policy implications and recommendations
- Incorporate election constraints into policy advice and macroeconomic projections.
- Strengthen the political feasibility of reforms before elections to improve reform durability and reduce opportunistic fiscal expansions.