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The political process and the use of debt financing by state governments

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  • William Baber
  • Pradyot Sen

Abstract

Empirical evidence offered in this study suggests that decisions by state government officials to effect debt-financed spending depend in part on the state's gubernatorial election cycle. More specifically, the results reveal relative increases in state debt issues in anticipation of elections, and furthermore, they reveal that such increases are more significant for states characterized by high interparty political competition. While theoretical limitations preclude a definitive explanation for these results, the evidence is consistent with a view of state political markets where incumbent parties manipulate public policy so as to enhance the probability of success in pending elections. This insight is significant in that it suggests a relationship between public policy decisions and election cycles in a context heretofore unexplored. Copyright Martinus Nijhoff Publishers 1986

Suggested Citation

  • William Baber & Pradyot Sen, 1986. "The political process and the use of debt financing by state governments," Public Choice, Springer, vol. 48(3), pages 201-215, January.
    • Handle: RePEc:kap:pubcho:v:48:y:1986:i:3:p:201-215
    DOI: 10.1007/BF00051618
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    References listed on IDEAS

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    1. Richard E. Wagner, 1977. "Economic Manipulation For Political Profit: Macroeconomic Consequences And Constitutional Implications," Kyklos, Wiley Blackwell, vol. 30(3), pages 395-410, August.
    2. George Stigler, 1972. "Economic competition and political competition," Public Choice, Springer, vol. 13(1), pages 91-106, September.
    3. Sharkansky, Ira & Hofferbert, Richard I., 1969. "Dimensions of State Politics, Economics, and Public Policy," American Political Science Review, Cambridge University Press, vol. 63(3), pages 867-879, November.
    4. Martin Paldam, 1981. "An essay on the rationality of economic policy: The test-case of the electional cycle," Public Choice, Springer, vol. 37(2), pages 287-305, January.
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    Cited by:

    1. Eric Dubois, 2016. "Political business cycles 40 years after Nordhaus," Public Choice, Springer, vol. 166(1), pages 235-259, January.
    2. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01291401, HAL.
    3. John Ashworth & Benny Geys & Bruno Heyndels, 2005. "Government Weakness and Local Public Debt Development in Flemish Municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 395-422, August.
    4. Diane Lim Rogers & John H. Rogers, 1995. "Political competition, causal relationships between taxes and spending, and their influence on government size: evidence from state-level data," International Finance Discussion Papers 500, Board of Governors of the Federal Reserve System (U.S.).
    5. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Post-Print hal-01291401, HAL.
    6. Carlos Serrano-Cinca & Mar Rueda-Tomás & Pilar Portillo-Tarragona, 2009. "Factors Influencing E-Disclosure in Local Public Administrations," Environment and Planning C, , vol. 27(2), pages 355-378, April.
    7. Amanda W. Beck, 2018. "Opportunistic financial reporting around municipal bond issues," Review of Accounting Studies, Springer, vol. 23(3), pages 785-826, September.
    8. Michael A. Ellis & D. Eric Schansberg, 1999. "The Determinants of State Government Debt Financing," Public Finance Review, , vol. 27(6), pages 571-587, November.
    9. Sanghee Park, 2018. "Understanding Public Sector Debt: Financial Vicious Circle under the Soft Budget Constraint," Public Organization Review, Springer, vol. 18(1), pages 71-92, March.
    10. Borge, Lars-Erik, 2005. "Strong politicians, small deficits: evidence from Norwegian local governments," European Journal of Political Economy, Elsevier, vol. 21(2), pages 325-344, June.
    11. Boll David & Sidki Marcus, 2017. "Die politische Ökonomie deutscher Landkreise: Determinanten der Verschuldung," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 66(3), pages 266-293, December.
    12. John Merrifield, 1994. "Factors That Influence the Level of Underground Government," Public Finance Review, , vol. 22(4), pages 462-482, October.
    13. repec:bla:ecopol:v:17:y:2005:i::p:245-263 is not listed on IDEAS
    14. Beatriz Cuadrado-Ballesteros & Noemí Mordán & Isabel-María García-Sánchez, 2014. "Is Local Financial Health Associated with Citizens’ Quality of Life?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 119(2), pages 559-580, November.
    15. John Ashworth & Bruno Heyndels, 2005. "Government Fragmentation And Budgetary Policy In “Good” And “Bad” Times In Flemish Municipalities," Economics and Politics, Wiley Blackwell, vol. 17(2), pages 245-263, July.
    16. Fox, William F. & Gurley, Tami, 2006. "Will consolidation improve sub-national governments ?," Policy Research Working Paper Series 3913, The World Bank.
    17. Elton Beqiraj & Silvia Fedeli & Francesco Forte, 2018. "Public budgetary rules and GDP growth: An empirical study on OECD and twelve european countries," Southern Economic Journal, John Wiley & Sons, vol. 85(1), pages 170-188, July.
    18. Wen Wang & Bo Zhao, 2017. "Transparency in state debt disclosure," Working Papers 17-10, Federal Reserve Bank of Boston.
    19. Andreas Kern & Puspa Amri, 2021. "Political credit cycles," Economics and Politics, Wiley Blackwell, vol. 33(1), pages 76-108, March.

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