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How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Cross−Section of Countries

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  • Drazen, Allan
  • Brender, Adi

Abstract

Conventional wisdom is that good economic conditions or expansionary fiscal policy help incumbents get re-elected, but this has not been tested in a large cross-section of countries. We test these arguments in a sample of 74 countries over the period 1960-2003. We find no evidence that deficits help reelection in any group of countries –developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with different levels of democracy. In developed countries, especially old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar negative electoral effects of deficits in the earlier years of an incumbent's term in office. Higher growth rates of real GDP per-capita raise the probability of reelection only in the less developed countries and in new democracies, but voters are affected by growth over the leader's term in office rather than in the election year itself. Low inflation is rewarded by voters only in the developed countries. The effects we find are not only statistically significant, but also quite substantial quantitatively. We also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies.

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  • Drazen, Allan & Brender, Adi, 2006. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Cross−Section of Countries," Foerder Institute for Economic Research Working Papers 275705, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275705
    DOI: 10.22004/ag.econ.275705
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    1. Dreher, Axel & Lamla, Michael J. & Lein, Sarah M. & Somogyi, Frank, 2009. "The impact of political leaders' profession and education on reforms," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 169-193, March.
    2. Eslava, Marcela, 2006. "The Political Economy of Fiscal Policy: Survey," IDB Publications (Working Papers) 3343, Inter-American Development Bank.
    3. Sakurai, Sergio N. & Menezes, Naercio A., 2008. "Fiscal policy and reelection in Brazilian municipalities," Insper Working Papers wpe_117, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    4. Peter Kukuk & Adam Gersl, 2011. "Political Pressure on the National Bank of Slovakia," Working Papers IES 2011/29, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2011.
    5. Marco Buti & Alessandro Turrini & Paul Noord & Pietro Biroli, 2009. "Defying the ‘Juncker curse’: can reformist governments be re-elected?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(1), pages 65-100, February.
    6. Khemani, Stuti & Wane, Waly, 2008. "Populist fiscal policy," Policy Research Working Paper Series 4762, The World Bank.
    7. Dreher, Axel & Vaubel, Roland, 2009. "Foreign exchange intervention and the political business cycle: A panel data analysis," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 755-775, September.
    8. Eslava, Marcela & Streb, Jorge M., 2011. "Comments," LSE Research Online Documents on Economics 123271, London School of Economics and Political Science, LSE Library.
    9. Alex Luiz Ferreira & Sérgio Naruhiko Sakurai, 2013. "Personal charisma or the economy?: Macroeconomic indicators of presidential approval ratings in Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 14(3–4), pages 214-232.
    10. Arvate, Paulo Roberto & Avelino, George & Tavares, José, 2009. "Fiscal conservatism in a new democracy: "Sophisticated" versus "naïve" voters," Economics Letters, Elsevier, vol. 102(2), pages 125-127, February.
    11. Carlos Eduardo Soares Gonçalves & Fernando Roberto Fenolio, 2007. "Ciclos Eleitorais E Política Monetária: Evidências Para O Brasil," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 107, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    12. Hyungon Kim & Chang Kwon, 2015. "The Effects of Fiscal Consolidation and Welfare Composition of Spending on Electoral Outcomes: Evidence from US Gubernatorial Elections between 1978 and 2006," New Political Economy, Taylor & Francis Journals, vol. 20(2), pages 228-253, April.
    13. Lora, Eduardo, 2008. "El futuro de los pactos fiscales en América Latina," Coediciones, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1310.
    14. Paulo Roberto Arvate & George Avelino & José A. Tavares, 2007. "Budget Deficits And Reelection Prospects: Voters As Fiscal Conservatives In A New Democracy," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 106, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    15. Paulo Arvate & Vladimir Ponczek, 2008. "Municipality secession, voter’s preference and persistence of power," Working Papers 08_07, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.
    16. Hlavac, Marek, 2008. "Fundamental Tax Reform: The Growth and Utility Effects of a Revenue-Neutral Flat Tax," MPRA Paper 24241, University Library of Munich, Germany.
    17. Sami Alpanda & Adam Honig, 2009. "The Impact of Central Bank Independence on Political Monetary Cycles in Advanced and Developing Nations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(7), pages 1365-1389, October.
    18. Tavares, José & Arvate, Paulo & Avelino, George, 2008. "Fiscal Conservatism in a New Democracy: 'Sophisticated' versus 'Naïve' Voters," CEPR Discussion Papers 6931, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Financial Economics; International Development;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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