This paper analyzes how opportunistic governments choose between alternative fiscal policies
in order to increases their chances of re-election. To increase the provision of public goods
shortly before elections – and thus, to generate a fiscal political business cycles –
governments may either increase deficits or redistribute governmental resources from longterm
efficient sources to short-term efficient public programs. We argue that incumbents who
face highly competed elections principally have an incentive to spend more on public goods
even though these investments are not efficient in the long term. In principal, they would do
so by increasing the deficits (with re-balancing the budget after the election). However, our
model demonstrates that incumbents would even electioneer at the cost of long-term
investments if the extent of fiscal transparency does not allow them to finance the provision of
public goods with higher deficits. In other words, if elections are close and voters may
observe the governmental deficit, then governments tend to increase the provision of public
goods – and consequently, their electoral prospects – by a redistribution of budget resources
from long-term efficient investment to a short-term provision of public goods. We test the
predictions with new data on the composition of government consumption for 17 OECD
countries over 35 years. The preliminary findings suggest that governments indeed reshuffle
resources from long-term efficient investment to short-term public goods before elections
especially if elections are contested
