Higher Spending in Years of Local Elections

Municipal public spending often increases prior to elections. This recurring phenomenon is the result of "political budget cycles", that is, strategic manipulation of expenditures or undue influence on other fiscal variables by elected representatives in office. Their motivation is to put themselves in a more positive light in view of upcoming elections. A study based on municipal data of the German States of Bavaria and Baden-Württemberg, conducted by the Mannheim Centre for European Economic Research (ZEW), shows that public spending increases particularly when local council and mayoral elections coincide, and when the incumbent mayor runs for re-election.

According to the findings of the study, the influential effect of politicians on fiscal variables holds particularly true for the legislative branch. In the year before a local legislative election, expenditures rise by 1.8 per cent, on average. For a medium-sized municipality with about 10,000 residents, this corresponds to an increase in spending by about EUR 300,000.

Favourable opportunities to coordinate expenditures between both political branches open up whenever executive and legislative election dates coincide, since mayors are not only the heads of local administration, but also the chairmen and voting members of the local council. In this scenario, the effect on public spending may be more or less pronounced, which largely depends on whether or not the incumbent mayor runs for re-election.

If the mayor in office runs for re-election and election dates coincide, public spending will increase in the year prior to the election and in the election year. In the year following both elections, spending will decline. In contrast, if the incumbent mayor does not run for re-election, expenditures will decline in the year prior to the election as well as in the election year, and will rise in the year after the election.

"If the mayor in office does not run for re-election, projects are more likely to be postponed before elections. After an election, new office holders apparently start to pursue their own projects as early as in the first year of their legislative term," says ZEW researcher Mustafa Yeter. According to Yeter, this explains why the spending behaviour of municipalities varies, depending on incumbent mayors' decisions concerning a re-election campaign.

Using data for Bavaria and Baden-Württemberg proved particularly suited for the study as mayors and local councils are elected by direct vote in both federal states. However, the duration of legislative terms as well as election dates differ between both states: in Bavaria, both elections take place at the same time and both electoral terms last six years. In Baden-Württemberg, the legislative term lasts five years and the mayor's term lasts eight years. Election dates therefore coincide only occasionally.

For more information please contact

Mustafa Yeter, Phone +49(0)621/1235-391, E-mail yeter@zew.de