Electoral Confidence and Political Budget Cycles in Non-OECD Countries

There is a growing consensus in the literature that the occurrence of political budget cycles (PBCs) is highly conditional upon context. Most studies have focused on incumbents' abilities to engage in pre-electoral fiscal manipulation while neglecting their incentives. This is particularly true for studies outside the Organization for Economic Cooperation and Development (OECD), which have attributed to incumbents a uniform and constant motivation to manipulate budgets in order to win elections. We argue that this is not the case. Using new data on state spending from 1960 to 2006 for 76 non-OECD countries, we show that PBCs primarily occur under conditions of uncertain electoral prospects. Thus, incentives to manipulate public spending prior to elections vary according to the incumbent's electoral confidence. Given the particular context of non-OECD countries, we argue theoretically and show empirically that incumbents' electoral confidence primarily depends on the tightness of past electoral results. Past political competition is thus a key driver of fiscal behavior in non-OECD countries.