بودن یا نبودن در اداره: آزمون تجربی از منطق محلی چرخه کسب و کار سیاسی

Empirical support is provided for our explanation for political business cycles (PBC) at the local government level. The rationale uses an ultrarational set-up to explore the incumbent leader's concern with his or her utility in cases of victory and defeat. The model is tested on Portuguese municipal data. The evidence reveals the role played by politico-economic determinants of local governments' investment outlays, such as electoral calendar, re-candidacy decisions, political cohesion and intergovernmental capital transfers.

In very broad terms, political business cycle (PBC) analysis concerns short-run government behaviour within election dates. It is believed that authorities choose economic policy in typical intertemporal patterns each office term.1 Theoretical approaches have searched for justifications of such patterns while empirical inquiries have tested the reliability of the models.

Conventional views about opportunistic PBCs often ascribe their origin to the electorate's shortsightedness or the incumbent's desire to be re-elected. In this paper, we have offered a different interpretation. PBCs can indeed be the optimal outcome of an ultrarational set-up where information is full and symmetrically distributed, all players optimise, voters are forward-lookers and the current incumbent explicitly allows for his or her satisfaction in the two possible future states of nature: electoral victory and electoral defeat. The theoretical framework points out two predictions. First, the optimal policy is a PBC where public outlays before elections exceed those after elections. The incumbent's pre-electoral utility is totally derived from being in office whereas post-electoral utility is contingent upon the electoral score: this introduces an asymmetry in the way pre- and post-electoral expenditure levels are set and engenders the cycle. Second, an increase in the (exogenous) re-election probability does not widen the expenditure cycle. This is so because the incumbent's pre-electoral utility becomes relatively less important following the probability shock. Local PBCs have previously not received much attention in the literature. Yet, the local government tier shows peculiar politico-economic conditions that may favour the emergence of PBCs. In particular, the uncertainty former leaders face in finding a new political appointment after an electoral defeat is higher at the local level. Our theoretical framework is particularly suited to explore this idea. Thus, the paper provides an empirical test to the proposed rationale, based on a panel data sample of Portuguese municipalities. Municipal investment expenditure was the endogenous variable over which political cycles were expected to materialise. The empirical evidence in the period 1986–1993 appears to support the theoretical model, as its predictions were not contradicted by the data. Moreover, access to European regional policy assistance and democratic maturity help to understand the smaller investment cycles in more recent years. From 1986 as well, an absolute majority of seats by the incumbent's party at the legislative branch exerts an expansionary impact on investment. The elasticity of investment with respect to received capital transfers exceeds 60% throughout the sample period. Public expenditure fluctuations can therefore be interpreted as the outcome of rational behaviour by fully informed agents. Inasmuch as these fluctuations are regarded as detrimental to society, our research motivates a future study on incentive design to minimise their occurrence.