Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111002
Authors: 
Baskaran, Thushyanthan
Blesse, Sebastian
Brender, Adi
Reingewertz, Yaniv
Year of Publication: 
2015
Series/Report no.: 
Discussion Papers, Center for European Governance and Economic Development Research 249
Abstract: 
This paper examines whether revenue decentralization and direct external financial supervision affect the incidence and strength of political budget cycles, using a panel of Israeli municipalities during the period 1999-2009. We find that high dependence on central government transfers - as reflected in a low share of locally raised revenues in the municipality´s budget - exacerbates political budget cycles, while tight monitoring - exercised through central government appointment of external accountants to debt accumulating municipalities - eliminates them. These results suggest that political budget cycles can result from fiscal institutions that create soft budget constraints: that is, where incumbents and rational voters can expect that the costs of pre-election expansions will be partly covered later by the central government.
Subjects: 
political budget cycles
soft budget constraint
local governments
decentralization
JEL: 
D72
H72
H74
E62
Document Type: 
Working Paper

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