Author： Streb Jorge Torrens Gustavo
Publisher： Springer Publishing Company
ISSN： 0048-5829
Source： Public Choice, Vol.156, Iss.3-4, 2013-09, pp. : 703-722
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Abstract
Political budget cycles (PBCs) can result from the credibility problems office-motivated incumbents face under asymmetric information, due to the temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit public debt, because borrowing is a necessary condition for aggregate PBCs. Since the legislature must typically authorize new debt, divided government can make these fiscal rules credible. Commitment is undermined by either unified government or imperfect compliance with the budget law, which can help explain why PBCs are stronger in developing countries and in new democracies. When divided government affects efficiency, voters must trade off electoral distortions and government competence.
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