Political budget cycles and reelection prospects in Greece's municipalities

Abstract

This paper considers the presence of political budget cycles in Greece's municipalities. We construct a new dataset from primary sources and we find strong evidence of pre-electoral manipulation through increased expenditures and excessive borrowing. We use a dynamic panel data approach producing evidence of opportunistic behavior in local government finances. Our results are robust in the face of a series of controls including mayors running for reelection, their political alignment with the central government, and prolonged terms. Moreover, the results are robust to the exclusion of small sized municipalities and to the restriction of the time range of our investigation to the post-Maastricht period. We also consider whether opportunistic policies influence incumbents' reelection prospects finding that increased expenditures and election year opportunistic excesses are electorally rewarding. Our findings provide a characterization of opportunistic public finances management in Greek municipalities where electorally motivated budgetary decisions appear impervious to the various municipal reform attempts.

Politically driven cycles in fiscal policy: In depth analysis of the functional components of government expenditures

“…Furthermore, by analyzing the vast 1 In particular, Akhmedov and Zhuravskaya (2004), Veiga and Veiga (2007) and Drazen and Eslava (2010) provide evidence of a strategic opportunistic behaviour in the composition of local/municipal (investment) expenditures, especially in highly visible items to the electorate: infrastructure spending, buildings, roads and general constructions. The evidence of opportunistic budget cycles at the local level as been ample and reinforced by more recent works like for instance Chortareas, et. al.…”

Elections and opportunistic budgetary policies in Greece

“…Chortareas, Logothetis, and Papandreou () study the presence of political budget cycles in Greece's municipalities. They produce evidence of preelectoral manipulation through increased expenditures and excessive borrowing that occurs irrespective of whether a mayor is running for reelection or is aligned with the central government.…”

Ciclo político en las finanzas de los gobiernos regionales de Colombia 1998-2014

“…A partir de un modelo de datos de panel estimado con el método generalizado de momentos, se encuentra evidencia sobre un comportamiento oportunista racional por parte de las autoridades, quienes se muestran a favor de medidas como reducción de los impuestos, aumento en el gasto municipal o redistribución de algunos rubros de gasto, previo a las elecciones. Chortareas et al (2016) estudian la presencia de ciclos políticos presupuestales en los municipios griegos en el periodo 1985-2004. A través de un ejercicio de datos panel, identifican lo que ellos denominan "manipulación pre-electoral", es decir, un aumento deliberado en el gasto y un endeudamiento excesivo previo al momento de elecciones.…”