Revenue decentralization, central oversight and the political budget cycle : evidence from Israel

Baskaran, Thushyanthan ; Blesse, Sebastian ; Brender, Adi ; Reingewertz, Yaniv

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URN: urn:nbn:de:bsz:180-madoc-394945
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: ZEW Discussion Papers
Volume: 15-046
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D72 , H72 , H74 , E62,
Keywords (English): Political budget cycles , soft budget constraint , local governments , decentralization
Abstract: This paper examines whether revenue decentralization and direct external financial supervision affect the incidence and strength of political budget cycles, using a panel of Israeli municipalities during the period 1999-2009. We find that high dependence on central government transfers—as reflected in a low share of locally raised revenues in the municipality’s budget—exacerbates political budget cycles, while tight monitoring—exercised through central government appointment of external accountants to debt accumulating municipalities—eliminates them. These results suggest that political budget cycles can result from fiscal institutions that create soft budget constraints: that is, where incumbents and rational voters can expect that the costs of pre-election expansions will be partly covered later by the central government.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.

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