Tariff increases over the electoral cycle: A question of size and salience

Research on the political budget cycle suggests that some budget items are more visible than others. Accordingly, the cycle will exert a varying impact on policy instruments of different salience. Using a panel data set of tariff decisions by Austrian local governments we identify a stable and sizable electoral cycle in water tariffs. Tariff increases are both less frequent and less strong before elections. The cycle effect is, however, not constant: Small increases are not affected by elections or even more likely. This is consistent with advances from prospect theory suggesting that visibility may depend on the size of a policy. Consequently, small tariff changes may not be salient, particularly if they are below inflation as a reference threshold.