This purpose of this project is to study fluctuations in fiscal policy induced by the election cycle from both a theoretical and empirical perspective. Conventional wisdom is that incumbents use economic policy, especially fiscal policy, before elections to influence electoral outcomes, with electoral considerations often seen as a key factor in policymaking around elections. Among economists, however, opinion is divided. One view is that fiscal expansion is indeed used in election years in many countries to generate desired economic and hence electoral effects, the other is that fiscal manipulation is punished rather than rewarded at the polls.
Recent work of by the PI suggests that the nature of political budget cycles depends on the experience of the voters with the electoral system. What accounts for these differences between new and established democracies? Is deficit spending electorally rewarded in the first group but punished in the second? What are the characteristics of new democracies that may explain the strength of the budget cycle. Especially important here is the information voters have about fiscal magnitudes. Drazen proposes several ways to measure this, including fiscal transparency indices. The project will attempt to compare this explanation with others, such as the fluidity of voting patterns or the greater amount of rent-seeking that it is argued may characterize new democracies. The project also studies why experienced voters respond to election-year economics, focusing on the importance of the amount of information they have when they enter the voting booth.
