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Fiscal deficits and executive planning horizons

Published online by Cambridge University Press:  14 May 2019

Mike Seiferling
Mike Seiferling*
Affiliation:
University College London, 29/31 Tavistock Square, WC1H 9QU, London, UK
*
*Corresponding author. Email: m.seiferling@ucl.ac.uk
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Abstract

Executive control of government is generally not a long-term job. In such cases, relatively short executive tenure should be expected to play an important role in determining the degree to which policymakers internalize the future costs associated with their current fiscal behavior. The effects of policymaker's expected planning horizons on macroeconomic outcomes, however, have been difficult to model outside of a fixed term limit context due to the unobserved likelihood of remaining in office, along with potential endogeneity problems where re-election campaigns can be enhanced with generous, deficit-financed expenditures in election years. From a globally representative sample of 79 countries over a 32-year period (1980–2012), this paper provides empirical evidence suggesting that incumbent governments who know that will not be in office in the following period with a probability of one, are found to generate significantly higher deficits in a linear discounting model, and are found to produce the least responsible fiscal outcomes where the likelihood of re-election is around fifty percent in quadratic discounting models.

Keywords

executive planning horizonsfiscal performancepolitical business cycle

JEL classification

H1: Structure and Scope of Government H3: Fiscal Policies and Behavior of Economic Agents H6: National Budget, Deficit, and Debt
Type
Original Articles
Information
Political Science Research and Methods , Volume 8 , Issue 2 , April 2020 , pp. 329 - 343
Copyright
Copyright © The European Political Science Association, 2019

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https://doi.org/10.7910/DVN/4O1T56
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