Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324330 
Year of Publication: 
2025
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 18-2025
Publisher: 
Philipps-University Marburg, School of Business and Economics, Marburg
Abstract: 
This paper examines Political Budget Cycles in federal systems, focusing on how a central incumbent allocates discretionary transfers across states in response to electoral incentives. We develop a theoretical model predicting that average discretionary transfers increase during federal election periods. While swing states consistently receive higher discretionary transfers due to their electoral competitiveness, the election period increase is larger for non-swing states. The intuition is that swing states are consistently targeted throughout the electoral cycle, while non-swing states become pivotal during federal elections to secure a national majority. To test these predictions, we compile a panel dataset of Indian states from 2006 to 2022. Using fixed effects specifications, we find evidence consistent with the theoretical model: discretionary transfers are significantly higher in federal election periods, swing states receive more discretionary transfers in non-election periods, and the election-period increase in discretionary transfers is more pronounced for non-swing states.
Subjects: 
Political budget cycles
Swing states
Federal systems
Elections
India
JEL: 
83
E62
H70
H72
Document Type: 
Working Paper

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