Abstract
A political business cycle (PBC), with governments adjusting and timing economic policy for electoral gains, has long been hypothesized. A lack of data has so far limited testing of this phenomenon for government policies as opposed to fiscal outcomes such as tax revenue or government deficit, especially at the national level. We use new monthly data on tax reform announcements for a set of 22 democracies, 1988–2014, to test the PBC hypothesis for taxation. In addition to the traditional electoral strategy formulation of the PBC, we also put forward and test a capacity version of the PBC. We find evidence for the capacity version but not the traditional version of the PBC: tax reforms are less likely to be announced before elections and more likely after elections, independently of whether they are increases or decreases. Our evidence suggests that while a PBC exists, it may be less driven by strategic electioneering and more innocuous than previously assumed.
| Original language | English |
|---|---|
| Pages (from-to) | 65-88 |
| Number of pages | 24 |
| Journal | Public Choice |
| Volume | 200 |
| Issue number | 1-2 |
| Early online date | 21 Feb 2024 |
| DOIs | |
| Publication status | Published - Jul 2024 |
Bibliographical note
Publisher Copyright:© The Author(s) 2024.
Funding
We would like to thank Brigitte Unger, Bob Rijkers, and anonymous reviewers and the editor for comments on earlier versions. The paper has also benefited from comments at the USE internal seminar series, and from Dr. Juan Pablo Couyoumdjian and others at the internal seminar at the School of Government at Universidad del Desarrollo, Santiago Chile. Most of the research was completed while Lucia Rossel Flores was a doctoral candidate at Utrecht University.
| Funders | Funder number |
|---|---|
| Horizon 2020 Framework Programme |
Keywords
- D72
- Elections
- H20
- P16
- Political budget cycle
- Political business cycle
- Political economy
- Tax reform
- Taxation