Vote Buying or (Political) Business (Cycles) as Usual?

We study the short-run effect of elections on the stock of money (M1) in a sample of low and middle income countries. We find robust evidence of a new monetary election cycle: the monthly growth rate of the money supply around elections is higher than in other months. We hypothesize that the cycle is related to systemic vote buying which requires significant amounts of cash at election times. Consistent with this hypothesis, we find that: i) a similar effect cannot be detected in authoritarian countries and countries with strong political institutions; ii) the effect is strongest in elections where international election monitors reported instances of vote buying; and iii) the effect is particularly pronounced in close elections. Using a survey that records daily consumer expenditure we show that within household consumption of food increases in the days before elections.

Aidt, Toke, Zareh Asatryan, Lusine Badalyan and Friedrich Heinemann (2020), Vote Buying or (Political) Business (Cycles) as Usual?, The Review of Economics and Statistics 102(3) , 409-425