The Hidden Side of Political Budget Cycles: Within-Year Electioneering

Vote-maximizing politicians have incentives to create political budget cycles (PBC) in public policy to meet the voters with the most favorable conditions on election day. Studies at the local level generally support the theory as local politicians tend to relax fiscal policies at the time of elections and build up a fiscal surplus in the midterm years. However, the literature seems to assume that electoral cycles are planned when the budgets are approved. We argue that cycles may also arise by activating fiscal instruments during the budget year, i.e., in the implementation of the planned budget. Based on a unique set of panel data on Danish municipalities’ fiscal policies across four full election periods, we systematically find that local governments relax fiscal policies the closer they get to an election, and that the cyclical fluctuations are created by a mix of expenditure and revenue cycles. However, the main contribution to the political budget cycle literature is the finding that “electioneering” of fiscal policies is created by a combination of budgeted (planned) expenditure increases in the post-election year budget and (unplanned) supplementary appropriations during the election year.