Do Leaders Affect Government Spending Priorities?

Since a key function of competitive elections is to allow voters to express their policy preferences, one might take it for granted that when leadership changes, policy change follows. Using a dataset we created on the composition of central government expenditures in a panel of 71 democracies over 1972-2003, we test whether changes in leadership induce significant changes in one measure of policy - spending composition - as well as looking at the effect of other political and economic variables. We find that the replacement of a leader tends to have no significant effect on expenditure composition in the short-run. This remains true after controlling for a host of political and economic variables. However, over the medium-term leadership changes are associated with larger changes in expenditure composition, mostly in developed countries. We also find that in established democracies, election years are associated with larger changes in expenditure composition while new democracies, which were found by Brender and Drazen (2005) to raise their overall level of expenditures in election years, tend not to have such changes.Budget; Political Leaders; Elections; Fiscal Policy; Expenditure Composition

Political Budget Cycles in New versus Established Democracies

Like other recent studies, we find the existence of a political deficit cycle in a large cross-section of countries. However, we find that this result is driven by the experience of new democracies'. The strong budget cycle in those countries accounts for the finding of a budget cycle in larger samples that include these countries; when these countries are removed from the larger sample, so that only established' democracies remain, the political budget cycle disappears. The political deficit cycle in new democracies accounts for findings in both developed and less developed economies, for the finding that the cycle is stronger 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 arguing it is a useful instrument to gain voter support and a widespread empirical phenomenon, the other arguing that voters punish rather than reward fiscal manipulation.

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

Conventional wisdom is that good economic conditions or expansionary fiscal policy help incumbents get re-elected, 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, especially old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar 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. 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.

Why is Economic Policy Different in New Democracies? Affecting Attitudes About Democracy

When democracy is new, it is often fragile and not fully consolidated. We investigate how the danger of a collapse of democracy may affect fiscal policy in new democracies in comparison to countries where democracy is older and often more established. We argue that the attitude of the citizenry towards democracy is important in preventing democratic collapse, and expenditures may therefore be used to convince them that "democracy works". We present a model focusing on the inference problem that citizens solve in forming their beliefs about the efficacy of democracy. Our approach differs from much of the literature that concentrates on policy directed towards anti-democratic elites, but our model can encompass that view and allows comparison of different apporoaches. We argue that the implications of the model are broadly consistent with the empirical patterns generally observed, including the existence of political budget cycles in new democracies not observed in established democracies.

Labor and the Emerging World Economy

This paper explores the emergence of a world economy since 1950 and its implications for the world's labor force. There are five main sets of conclusions. First, the share of the world's labor force located in developing countries increased significantly between 1950 and 1990. Productivity differentials between high - and low-income countries did not decrease over time, and wage differentials were even larger than productivity differentials. These results suggest that whatever integration took place between the industrial and developing countries was insufficient to overcome the large differentials in labor force growth rates between them. Second, although the integration of national economies since 1950 has been considerable, the world economy is still in its adolescence. Rapid integration has occurred among the industrial economies, but integration among the developing economies and between the industrial and the developing economies has proceeded slowly. Third, international labor mobility can account for little, if any, economic integration since 1950. The economic integration that has been achieved is due mainly to the increased flow of capital across international boundaries and, more important, to the dramatic increase in trade, especially among the industrial countries. These developments have been driven by technological changes that have reduced the costs of transportation and communication, and by institutional changes that have reduced the barriers to international labor mobility. Fourth, these patterns of integration are associated with a sharp decline in income inequality among the industrial economies, but with some rise in world income inequality as the income gap between the industrial and developing countries has increased. Finally, the large increase in developing economies share of the world labor force projected for the next few decades will magnify their incentives to integrate more closely among themselves and with the industrial economies. World income per capital will be promoted by such integration, which is likely to occur through increased international trade and international relocation of jobs, not through a substantial rise in international labor mobility

Do Leaders Affect Government Spending Priorities?

Since a key function of competitive elections is to allow voters to express their policy preferences, one might take it for granted that when leadership changes, policy change follows. Using a dataset we created on the composition of central government expenditures in a panel of 71 democracies over 1972-2003, we test whether changes in leadership induce significant changes in spending composition, as well as looking at the effect of other political and economic variables. We find that the replacement of a leader tends to have no significant effect on expenditure composition in the short-run. This remains true after controlling for a host of political and economic variables. However, over the medium-term leadership changes are associated with larger changes in expenditure composition, mostly in developed countries. We also find that in established democracies, election years are associated with larger changes in expenditure composition while new democracies, which were found by Brender and Drazen (2005) to raise their overall level of expenditures in election years, tend not to have such changes.

Labor and the Emerging World Economy

This paper explores the emergence of a world economy since 1950 and its implications for the world's labor force. There are four main sets of conclusions. First, although the integration of national economies since 1950 has been considerable, the world economy is still in its adolescence. Rapid integration has occurred among the industrial economies, but integration among the developing economies and between the industrial and developing economies has proceeded slowly. Second, international labor mobility can account for little, if any, economic integration since 1950. The economic integration that has been achieved is due mainly to the increased flow of capital across international boundaries and to a dramatic increase in trade, especially among the industrial countries. These developments have been driven by technological and institutional changes that have reduced the transactions costs for trade and capital mobility while maintaining or increasing barriers to international labor mobility. Third, these patterns of integration are associated with a sharp decline in income inequality among the industrial economies, but not in world income inequality as the income gap between the industrial and developing countries has increased. Finally, the large increase in developing economies' share of the world labor force projected for the next few decades will magnify their incentives to integrate more closely among themselves and with the industrial economies. World income per capita will be promoted by such integration.

Revenue decentralization, central oversight and the political budget cycle : evidence from Israel

This paper examines whether revenue decentralization and direct external financial supervision affect the incidence and strength of political budget cycles, using a panel of Israeli municipalities during the period 1999-2009. We find that high dependence on central government transfers—as reflected in a low share of locally raised revenues in the municipality’s budget—exacerbates political budget cycles, while tight monitoring—exercised through central government appointment of external accountants to debt accumulating municipalities—eliminates them. These results suggest that political budget cycles can result from fiscal institutions that create soft budget constraints: that is, where incumbents and rational voters can expect that the costs of pre-election expansions will be partly covered later by the central government