Political budget cycle and financial performance of local government: an international perspective
Year: 2025
Type: article
Abstract: Purpose: The purpose of this article is to identify an influence of the political budget cycle (PBC) on the financial performance of local government sector in OECD countries against the background of socio-economic and institutional conditions.Design/methodology/approach: The literature on the subject was studied to present the specific effect of the election cycle on the financial condition of local government.Then, longitudinal data models were estimated, i.e. fixed effects models, random effects models, panel quantile regressions with fixed effects using the method of moments, based on data on the local government sector in 28 OECD countries for the period 2007-2022. Findings:The study shows that local government elections affect the financial performance of the local government sector in OECD countries, i.e. both the revenue and expenditure side of the budget, as well as the deterioration of the fiscal balance.However, in the post-election year this balance improves.This is an expression of opportunistically motivated fiscal policies at the sub-national level.Research limitations/implications: Theoretically, the paper advances understanding of an impact of the socio-economic and institutional circumstances, as well as the potential interactions of certain factors, on the fiscal sustainability.Although the study did not find a statistically significant effect of the level of democracy on fiscal balance, its higher level mitigates the negative impact of local elections on the fiscal sustainability of the local government sector. Practical implications:The PBC phenomenon in the local government sector intensified in economies with less sustainable local public finances.Practically, the study identifies areas of policymakers' activities that can be supervised in order to maintain sound public budgets.Social implications: It is crucial to strengthen the principles of democracy, especially the aspects of free and fair elections, the greater scope of which does not restrain the authorities to raise local taxes during elections.Originality/value: There is a dearth of surveys studying an impact of the election cycle on the financial performance of the local government sectors from the international perspective due to the scholars concentrate on the national context.
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4411895479