Political budget cycles in a fiscal federation : the effect of partisan voluntary transfers

• Autor(a) principal: Bugarin, Maurício Soares
• Data de Publicação: 2006
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
• Texto Completo: http://hdl.handle.net/10438/12444
• topic: Fiscal federalism, partisan transfers, Political budget cycles; Economia; Eleições - Modelos econométricos; Relações fiscais intergovernamentais - Modelos econométricos; Ciclos econômicos - Modelos econométricos

This article first presents an econometric study suggesting that intergovernmental transfers to Brazilian municipalities are strongly partisan motivated. In light of that stylized fact, it develops an extension to Rogoff (1990)’s model to analyze the effect of partisan motivated transfers into sub-national electoral and fiscal equilibria. The main finding is that important partisan transfers may undo the positive selection aspect of political budget cycles. Indeed, partisan transfers may, on one hand, eliminate the political budget cycle, solving a moral hazard problem, but, on the other hand, they may retain an incompetent incumbent in office, bringing about an adverse selection problem.