Vera Troeger Presented the Report on 'The Politics of Strategic Budgeteering'

On November 24 a research seminar on political economy took place at HSE.  Vera E. Troeger (University of Warwick) spoke on 'The Politics of Strategic Budgeteering'.

Abstract:

Governments want to be reelected but increasing fiscal transparency has imposed many challenges for them to pursue opportunistic fiscal policies. This paper demonstrates that governments can electioneer even when fiscal transparency is high. We argue that governments can use several strategies to increase public good provision before elections, and they choose the strategies that are most effective given the level of transparency. Whereas deficit spending is an effective strategy to artificially increase voters’ perceived welfare before elections when voters cannot observe these distortionary practices, increasing fiscal transparency makes these strategies more costly (conservative voters would punish the government). Consequently, when fiscal transparency is high governments resort to less visible strategies, such as the redistribution of budgetary resources from long-term efficient investment spending to short-term consumption spending. We test the predictions with data on the composition of government spending for 32 countries over up to 38 years and data on individual budget items for 17 OECD countries over 35 years. The preliminary findings suggest that governments indeed redistribute resources from long-term efficient investment to short-term public goods provision before elections especially if elections are contested.