Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/108677 
Year of Publication: 
2015
Series/Report no.: 
IZA Discussion Papers No. 8798
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
This paper analyzes the occurrence of political budget cycles in 604 West German cities between 1975 and 2007. Due to the idiosyncratic timing of state and local elections, the budgetary changes before elections at two tiers of the federalist government can be separately estimated and can also be distinguished from common time effects. Both local and state elections result in pre-election manipulation of the local finances of moderate size. Before both types of elections, we observe an increase in building investments, accompanied by increasing intergovernmental grants for investment purposes but also a halt in the increase of local tax rates. By contrast, elections at the two tiers of the government affect the size of the current budget differently: current revenues and expenditures decrease before local but increase before state elections, suggesting a difference in the tightness of the local budget constraint. The extent of these political budget cycles is more pronounced in municipalities that are politically aligned with the state governments and are politically more contested.
Subjects: 
political budget cycles
German cities
municipal finances
local and state elections
JEL: 
D72
H71
H72
Document Type: 
Working Paper

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