Checks and Balances on Political Budget Cycles: Cross-Country Evidence

Authors

  • Jorge M. Streb,

    1. Universidad del Cema, Av. Córdoba 374, 1054 Buenos Aires, Argentina
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  • Daniel Lema,

    1. Universidad del Cema
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  • Gustavo Torrens

    1. Washington University in Saint Louis
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    • * Corresponding author: Jorge M. Streb, Universidad del Cema, Av. Córdoba 374, 1054 Buenos Aires, Argentina; jms@cema.edu.ar. Daniel Lema: Universidad del Cema, dl@cema.edu.ar. Gustavo Torrens: Washington University in Saint Louis, gftorren@artsci.wustl.edu. Alejandro Saporiti helped launch this project, Adi Brender and Allan Drazen kindly provided their database, and Pablo Garofalo was research assistant. We benefited from the suggestions by a reviewer of Kyklos, and from insightful comments by Marco Bonomo, Sebastián Galiani, María Laura Alzúa, Alejandro Corbacho, Marcela Eslava, Ernesto Stein, and participants at UdeSA, UTDT, UCEMA, UNLP, the LACEA Political Economy Group, the Asociación Argentina de Economía Política, the Encontro Brasileiro de Econometria, and the La Plata Conference on Monetary and International Economics. Our views are personal.


SUMMARY

Previous empirical work on political budget cycles (PBCs) implicitly assumes the executive has full discretion over fiscal policy. Instead, we ask what happens when legislative checks and balances limit executive discretion. We find that legislative checks and balances moderate PBCs in countries with high compliance with the law. More effective checks and balances help to explain why cycles are weaker in developed countries and in established democracies. When the discretional component of executive power is isolated, there are significant cycles in all democracies.

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