CFCM 15/14: Political Budget Cycles and Media Freedom

Abstract

This paper examines the effects of elections on the conduct of central governments' fiscal policies. To do so, it uses a unique panel database that includes disaggregated spending and revenue series at the central government level for multiple countries over the 1975-2010 period. After examining political environments under which incumbent governments generate political budget cycles (PBCs), we compare the relative importance of factors influencing cycles. Media freedom is identified as the factor that plays the most critical role. Specifically, we find robust evidence that the electoral effect on budget deficits under low media freedom is significantly larger than under high freedom, even when other determinants of PBCs are controlled for. We then show that what drives the election-year rise in budget deficits under low media freedom is an increase in the current, not capital, component of public expenditure.

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Authors

Francisco José Veiga, Linda Gonçalves Veiga and Atsuyoshi Morozumi

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