Fiscal redistribution around elections when democracy is not “the only game in town”

Abstract

This paper seeks to examine the implications of policy intervention around elections on income inequality and fiscal redistribution. We first develop a simplified theoretical framework that allows us to examine election-cycle fiscal redistribution programs in the presence of a revolutionary threat from some groups of agents, i.e., when democracy is not ''the only game in town''. According to our theoretical analysis, when democracy is not ''the only game in town'', incumbents implement redistributive policies not only as a means of improving their reelection prospects, but also in order to signal that ''democracy works'', thereby preventing a reversion to an autocratic status quo ante at a time of the current regime's extreme vulnerability. Subsequently, focusing on 65 developed and developing countries over the 1975-2010 period, we report robust empirical evidence of pre-electoral budgetary manipulation in new democracies. Consistent with our theory, this finding is driven by political instability that induces incumbents to redistribute income-through tax and spending policies-in a relatively broader coalition of voters with the aim of consolidating the vulnerable newly established democratic regime.

Democratisation and tax structure in the presence of home production: Evidence from the Kingdom of Greece

“…Along these lines,Brender and Drazen (2007) suggest that the attitude of the citizenry towards democracy is important in preventing democratic collapse, and fiscal manipulation can act as an instrument to convince them that "democracy works". In line with this argument,Kammas and Sarantides (2016) show that when the democratic regime is not fully consolidated (i.e., new democracy), incumbents implement pre-electoral redistributive policies in order to signal that "democracy works", thereby preventing a reversion to an autocratic status quo at a time of the regime's extreme vulnerability.…”

Unbundling the effect of political instability on income redistribution

“…To the extent that the government of politically unstable economies experience a greater political pressure for redistribution, there exists a positive association between political instability and redistributive effort. One could also contend that the probability of losing office increases the government's vulnerability to demands for redistribution stemming from politically powerful and special interest groups (Kammas & Sarantides, 2016). As such, the governments of politically unstable countries tend to implement redistributive policies to enhance reelection prospects and the political regime's stability (Kammas & Sarantides, 2016).…”

“…One could also contend that the probability of losing office increases the government's vulnerability to demands for redistribution stemming from politically powerful and special interest groups (Kammas & Sarantides, 2016). As such, the governments of politically unstable countries tend to implement redistributive policies to enhance reelection prospects and the political regime's stability (Kammas & Sarantides, 2016). 9 Therefore, I hypothesize that political instability has a positive influence on income redistribution by boosting the government's redistributive effort.…”

Political budget cycles revisited: Testing the signalling process

“…Moreover, specific groups of voters could be more easily targeted at the local 2 For example, Bohn (2018Bohn ( , 2019, Bove at al. (2017), Brender and Drazen (2009), Candel-Sánchez ( 2007), Drazen andEslava (2006, 2010), González et al (2013), Hanusch (2012a, 2012b, Hindriks and Lockwood (2009), Kammas and Sarantides (2016), Saporiti and Streb (2008), Streb et al (2005), Streb and Torrens (2013), and Wang and Bohn (2019). 3 See also Kraemer (1997), Schuknecht (1996Schuknecht ( , 2000, Chang (2008), Efthyvoulou (2012), Eslava (2011), de Haan (2013a), andDubois (2016).…”