Like other recent studies, we find a political deficit cycle in a large cross-section of countries, but show that this result is driven by the experience of "new democracies". The political budget cycle in new democracies accounts for the finding of a budget cycle in larger samples that include these countries and disappears when they are removed from the larger sample. The political deficit cycle in new democracies accounts for findings in both developed and less developed economies, for the stronger cycle in weaker democracies, and for differences in the political cycle across governmental and electoral systems. Our findings may reconcile two contradictory views of pre-electoral manipulation, one that it is a useful instrument to gain voter support and a widespread empirical phenomenon, the other that voters punish rather than reward fiscal manipulation.

Political Budget Cycles in New Versus Established Democracies

If informed voters receive favorable policies, then the invention of a new mass medium may affect government policies since it affects who is informed and who is not. These ideas are developed in a voting model. The model forms the basis for an empirical investigation of a major New Deal relief program implemented in the middle of the expansion period of radio. The main empirical finding is that U. S. counties with many radio listeners received more relief funds. More funds were allocated to poor counties with high unemployment, but controlling for these and other variables, the effects of radio are large and highly significant.

Radio's Impact on Public Spending

https://www.nber.org/system/files/working_papers/w10539/w10539.pdf

Political budget cycles in new versus established democracies

http://econweb.umd.edu/~drazen/Working_Papers/voter_friendly.pdf

Electoral manipulation via voter-friendly spending: Theory and evidence

Conventional wisdom is that good economic conditions and expansionary fiscal policy help incumbents get reelected, but this has not been tested in a large cross-section of countries. We test these arguments in a sample of 74 countries over the period 1960-2003. We find no evidence that deficits help reelection in any group of countries - developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with different levels of democracy. In developed countries and in old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar, although smaller, negative electoral effects of deficits in the earlier years of an incumbent's term in office. Higher growth rates of real GDP per-capita raise the probability of reelection only in the less developed countries and in new democracies, but voters are affected by growth over the leader's term in office rather than in the election year itself and apparently only by growth not attributed to global growth. Low inflation is rewarded by voters only in the developed countries. The effects we find are not only statistically significant, but also quite substantial quantitatively. We also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies.

/pdf/how-do-budget-deficits-and-economic-growth-affect-reelection-2wf0detv4m.pdf

How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries

Political budget cycles: Do they differ across countries and why?

This paper provides a review of recent developments in the theory and evidence of political budget cycles Specifically, we discuss three areas where significant progress has been made First, new theoretical explanations (models) have been proposed where political budget cycles arise as the result of a moral hazard problem between the government and the electorate Second, more sophisticated empirical methods, in particular, time series methods appropriate for dynamic panel data regressions, have been adopted in cross-country analyses Last but not least, the focus of recent studies has shifted from industrialized countries to all (including developing) countries, and from the existence of political budget cycles to the magnitude and composition (revenue vs spending) of these cycles

/pdf/political-budget-cycles-a-review-of-recent-developments-w2tpowg0s4.pdf

Political Budget Cycles: A Review of Recent Developments

This Paper uses a large new panel data set to examine the relationship between elections and fiscal policy We find clear evidence of political business cycles in macroeconomic policy: spending increases before elections while revenues fall, leading to a larger deficit in election years We also show that there are large systematic differences between developed and developing countries in the size and composition of the electoral policy cycles We propose a moral hazard model of electoral competition to explain these differences In the model, the sizes of the electoral budget cycles depend on the rents of remaining in power and the share of informed voters in the electorate Using suitable proxies, we find that these institutional features explain a large part of the difference in policy cycles between developed and developing countries

Conditional Political Budget Cycles

This Paper uses a large new panel data set to examine the relationship between elections and fiscal policy. We find clear evidence of political business cycles in macroeconomic policy: spending increases before elections while revenues fall, leading to a larger deficit in election years. We also show that there are large systematic differences between developed and developing countries in the size and composition of the electoral policy cycles. We propose a moral hazard model of electoral competition to explain these differences. In the model, the sizes of the electoral budget cycles depend on the rents of remaining in power and the share of informed voters in the electorate. Using suitable proxies, we find that these institutional features explain a large part of the difference in policy cycles between developed and developing countries.

We study signaling equilibria at the IPO when owners determine not only the price at which to sell primary equity but also the amount of investment proceeds to raise. This implies owners have a choice of two signals at the IPO, i.e., investment oriented signaling and underpricing. We show that in the most efficient signaling equilibrium, owners have a strict preference for scaling the investment project over underpricing primary shares. Underpricing survives in equilibrium if and only if owners lack flexibility in determining the level of investment required to fund future projects. By considering multiple signaling strategies, our model provides insight into the poor empirical relation between the degree of underpricing and the subsequent operating performance and the amount of proceeds raised at the SEOs.

Min Shi

Papers

Political budget cycles: Do they differ across countries and why?

Political Budget Cycles: A Review of Recent Developments

Conditional Political Budget Cycles

Conditional Political Budget Cycles

Underpricing versus Underinvestment in IPOs