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Staying in Power: How Does Political Continuity Shape Debt

Author

Listed:
  • Jaime Bonet-Morón
  • Jhorland Ayala-García
  • Jorge Guerra-España

Abstract

This paper investigates the relationship between political continuity and public municipal debt in Colombia, highlighting how political cycles influence fiscal behavior at the subnational level. Unlike national cycles, local political dynamics, marked by consecutive electoral victories of the same party, significantly impact fiscal policy and debt accumulation. Using a Kink Regression Discontinuity design, we explore the effects of these electoral outcomes on public financial debt. Our findings reveal that municipalities governed by the same party or coalition across successive elections exhibit a 0.25% increase in debt levels for every percentage point increase in their election win margin. This trend becomes more pronounced over time, with debt levels peaking in election years. The robustness of our results is confirmed through various bandwidths and placebo tests, which include random shuffling of electoral outcomes and reassignment of electoral results from different years. Our study contributes to the understanding of how political stability or continuity can shape fiscal outcomes at the regional level, a topic that has received limited attention in the political economy literature. **** RESUMEN: Este artículo investiga la relación entre la continuidad política y la deuda pública municipal en Colombia, destacando cómo los ciclos políticos influyen en el comportamiento fiscal subnacional. A diferencia de los ciclos nacionales, la dinámica política local, marcada por victorias electorales consecutivas del mismo partido, impacta significativamente la política fiscal y la acumulación de deuda. Utilizando un diseño de Regresión Discontinua, exploramos los efectos de estos resultados electorales sobre la deuda financiera pública. Nuestros hallazgos revelan que los municipios gobernados por el mismo partido o coalición a lo largo de elecciones sucesivas exhiben un aumento del 0,25% en los niveles de deuda por cada punto porcentual de aumento en su margen de victoria electoral. Esta tendencia se vuelve más pronunciada con el tiempo, y los niveles de deuda alcanzan su punto máximo en los años electorales. La solidez de nuestros resultados se confirma a través de varios escenarios y pruebas placebo, que incluyen la mezcla aleatoria de resultados electorales y la reasignación de resultados electorales de diferentes años. Nuestro estudio contribuye a la comprensión de cómo la estabilidad política o la continuidad pueden dar forma a los resultados fiscales a nivel regional, un tema que ha recibido poca atención en la literatura de economía política.

Suggested Citation

  • Jaime Bonet-Morón & Jhorland Ayala-García & Jorge Guerra-España, 2024. "Staying in Power: How Does Political Continuity Shape Debt," Documentos de trabajo sobre Economía Regional y Urbana 331, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:region:331
    DOI: 10.32468/dtseru.331
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    More about this item

    Keywords

    Public Finances; Local Debt; Political Processes; Elections and Voting Behavior; Finanzas públicas; deuda local; procesos políticos; elecciones y comportamiento electoral;
    All these keywords.

    JEL classification:

    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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