Political Budget Cycles in Papua New Guinea
IMF Working Papers, September 1, 2007
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Bibliographic details
- Authors: Ebrima A Faal
- Published: September 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867831.001
Overview
- This paper assesses the presence of opportunistic electoral budget cycles in Papua New Guinea.
- Using quarterly time series data, the paper identifies a clear pattern of pre-election manipulations of fiscal policy by incumbent governments, mainly in the form of increased development spending and overall primary expenditure, followed in some cases by retrenchment in post-election periods.
- The findings are described as consistent with the predictions of rational opportunistic political business cycle theory.
- Revenue was not statistically significantly related to elections, either in the pre- or post-election period, implying electoral swings in fiscal deficits reflect a preference for influencing expenditures rather than taxation.
Key Findings
- Pre-election period:
- Increased development spending.
- Increased overall primary expenditure.
- Post-election period:
- In some cases, retrenchment (reductions) in spending following elections.
- Revenue behavior:
- Revenue was not statistically significantly related to elections in either the pre- or post-election period.
- Interpretation:
- Results are consistent with rational opportunistic political business cycle theory.
- Electoral fiscal manipulation is conducted primarily through expenditure adjustments rather than tax changes.
Methodology and Data
- Frequency: Quarterly time series data.
- Empirical approach: Statistical testing of fiscal variables around election periods to detect opportunistic electoral budget cycles.
Policy Implications
- Fiscal management focus:
- Since incumbents tend to influence expenditures rather than revenues around elections, fiscal oversight and rules aimed at expenditure control may be particularly relevant for preventing opportunistic cycles.
- Monitoring and transparency:
- Enhanced monitoring of development spending and primary expenditure during pre-election periods could mitigate opportunistic manipulation.
- Revenue policy:
- Given the lack of statistically significant electoral effects on revenue, reforms focused solely on tax-side instruments may be insufficient to curb pre-election fiscal expansions.