Overlapping Political Budget Cycles in the Legislative and the Executive

We advance the literature on political budget cycles by testing separately for cycles in expenditures for elections in the legislative and the executive. Using municipal data, we can separately identify these cycles and account for general year effects. For the executive branch, we show that it is important whether the incumbent re-runs. To account for the potential endogeneity associated with this decision, we apply a unique instrumental variables approach based on age and pension eligibility rules. We find sizable and significant effects in expenditures before council elections and before joint elections when the incumbent re-runs.

Foremny, Dirk, Ronny Freier, Marc-Daniel Moessinger and Mustafa Yeter (2014), Overlapping Political Budget Cycles in the Legislative and the Executive, ZEW Discussion Paper No. 14-099, Mannheim.