Democracy, Elections and Government Budget Deficits

Jakob de Haan 1 , 2 , 3
  • 1 University of Groningen,, Groningen, Netherlands
  • 2 De Nederlandsche Bank,, Amsterdam, Netherlands
  • 3 CESifo,, Munich, Germany

Abstract

I review research on the relationship between democracy and government indebtedness. I first discuss whether the extent to which politicians use fiscal policy for reelection purposes is conditioned by a country’s experience with democracy. Political budget cycles are not confined to young democracies, but evidence suggests that in younger democracies such cycles are more likely and also stronger than in more mature democracies. Next, I discuss whether the use of fiscal policy by the incumbent increases his/her chances for reelection. Research discussed suggests that political parties in government benefit to some extent if fiscal policy turns expansionary before elections occur.

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