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Cover IMF Working Papers
Fiscal Policy over the Election Cycle in Low-Income Countries
Mr. Christian H Ebeke and Miss Dilan Ölcer
Focusing on Low-Income Countries, we investigate the behavior of fiscal variables during and after elections. The results indicate that during election years, government consumption significantly increases and leads to higher fiscal deficits. During the two years following elections, the fiscal adjustment takes the form of increased revenue mobilization in trade taxes and cuts to government investment, with no significant cuts in government consumption. Using a new dataset on national fiscal rules and IMF programs, we find that both the presence of fiscal rules and IMF programs help dampen the magnitude of the political budget cycle in LICs. We conclude that elections not only imply a macroeconomic cost when they take place but also trigger a painful fiscal adjustment in which public investment is largely sacrificed.
Keywords:
WP; IMF program; Elections; budgets; fiscal rules; IMF programs; election cycle; election variable; election dummy; post election; election effect; election timing; Budget planning and preparation; Sub-Saharan Africa
Cover IMF Working Papers
Electoral Cycles in Tax Reforms
Mr. Antonio David and Can Sever
We examine electoral cycles in tax reforms using monthly data over the period of 1990-2018 for 22 advanced economies and emerging markets. We show that governments tend to avoid announcing tax reforms during the months running up to elections. In addition, they become more likely to announce those reforms in the first few months following elections, indicating that “political capital” plays a role in the timing of reforms. These patterns are broad-based regarding the changes in tax base and rate, and for various types of taxes. We also find that the pre-election decrease in the likelihood of tax reform announcements is stronger in emerging markets, and weaker in the countries with relatively better institutional quality. Finally, our results indicate that neither fiscal rules nor IMF programs appear to have differential effects on electoral cycles in tax reforms.
Keywords:
Tax Reforms; Electoral Cycles; Political Economy; Institutional Quality; reform announcement; elections in the sample; announcements decrease; election dummy; election variable; Fiscal rules; Probit models; Personal income tax; Social security contributions; Emerging and frontier financial markets; Global
Cover Fiscal Politics
Chapter 3. Fiscal Policy over the Election Cycle in Low-Income Countries
Mr. Christian H Ebeke

election in LICs. Several fiscal outcomes (government consumption, public investment, breakdown of tax revenues, and budget balance as percentage of GDP) are used to assess the magnitude of the shocks on the budget during and after elections. The section also discusses the baseline econometric results. Baseline Specification and Data This chapter estimates several dynamic panel equations linking a given fiscal outcome with the election dummy while controlling for standard determinants of the given fiscal variable. As has now become standard in the literature on

Keywords:
BOOK; government; expenditure rule; center; wage bill; promise gap; revenue conditionality; energy subsidy; Fiscal rules; Europe; Global; Sub-Saharan Africa; Middle East; Africa; IMF program; election cycle; election dummy; election variable; election timing; Government consumption
Cover Fiscal Politics
Chapter 13. Fiscal Rules to Tame the Political Budget Cycle: Evidence from Italian Municipalities
Andrea Bonfatti

= 1, 2). Additional covariates X it include mayor’s characteristics (gender, age, education, party affiliation, ideological stance), total per capita transfers received by municipalities, the proportion of people ages 15–64 years, and taxable per capita income, while μ i and λ t are municipality fixed effects and year effects, respectively. 10 Table 13.2 reports the estimates at the 5,000-inhabitant threshold of the political budget cycle effect (the α 0 coefficient of the election dummy W it ) and the fiscal rule effect on the political budget cycle (the

Keywords:
BOOK; government; expenditure rule; center; wage bill; promise gap; revenue conditionality; energy subsidy; Fiscal rules; Europe; Global; Sub-Saharan Africa; Middle East; Africa; election dummy; budget cycle; election year; DSP rule; runoff election; Budget planning and preparation; Capital spending; Current spending
Cover IMF Working Papers
Front Matter
Mr. Shaun K. Roache

—Public Investment on Output D. The Impact of Growth on Public Investment E. The Impact of Public Investment and Growth on the Bilateral RER F. Effects of Natural Disaster and Elections VI. Conclusions Tables 1. ECCU: Rate of Return on Public Investment 2. ECCU: Rate of Return Compared Appendices I. ECCU Public Investment Model: Summary Statistics II. Correlation Matrix of Model Variables III. VAR Coefficients on Natural Disaster and Election Dummy Variables Figures 1. ECCU: Public Investment, Growth and Aid Inflows, 1975–2004 2. ECCU: Public Sector

Keywords:
WP; growth rate
Cover IMF Working Papers
When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies
Miss Anna R Bordon, Mr. Christian H Ebeke, and Ms. Kazuko Shirono
Structural reforms are expected to lift growth and employment, but their effects are surprisingly difficult to pin down empirically. One reason is their potential endogeneity to the economic environment in which they are conducted. For example, the impact of a reform implemented shortly before a cyclical upswing is difficult to distinguish from the recovery itself. Similarly, macroeconomic policies conducted along a structural reform could affect the estimated impact. Exploring various options, this paper develops robust estimates of the impact of labor and product market reforms by using local projection techniques while controlling for endogeneity of reforms and other biases. The results suggest that labor and product market reforms have a lagged but positive impact on employment creation, and the positive effect remains even after controlling for the endogeneity of the decision to reform. Supportive macroeconomic policies are found to increase the effect of labor and product market reforms, consistent with the view that some structural reforms are best initiated in conjunction with supportive fiscal or monetary policy.
Keywords:
WP; fiscal policy; monetary policy; product market reform; reform; Structural reforms; employment; reform shock; monetary policy stance; output gap; OECD indicator; employment protection legislation reform; Employment rate; Labor market reforms; Commodity markets; Europe; Global
Cover IMF Working Papers
On the Determinants of Fiscal Non-Compliance: An Empirical Analysis of Spain’s Regions
Mar Delgado-Téllez, Victor Duarte Lledo, and Javier J. Pérez
This paper proposes an empirical framework that distinguishes voluntary from involuntary compliance with fiscal deficit targets on the basis of economic, institutional, and political factors. The framework is applied to Spain’s Autonomous Communities (regions) over the period 2002-2015. Fiscal noncompliance among Spain’s regions has shown to be persistent. It increases with the size of growth forecast errors and the extent to which fiscal targets are tightened, factors not fully under the control of regional governments. Non-compliance also tends to increase during election years, when vertical fiscal imbalances accentuate, and market financing costs subside. Strong fiscal rules have not shown any significant impact in containing fiscal non-compliance. Reducing fiscal non-compliance in multilevel governance systems such as the one in Spain requires a comprehensive assessment of intergovernmental fiscal arrangements that looks beyond rules-based frameworks by ensuring enforcement procedures are politically credible.
Keywords:
WP; government coalition; CG authorization; deficit target; public finance; Fiscal compliance; rules; fiscal federalism; soft budget constraints; pro-autonomy party; government incumbent; credit ratings; multi-level government context; Government debt management; Fiscal rules; Budget planning and preparation; Fiscal risks; Fiscal consolidation; Europe; Global