Electoral Cycles in Public Expenditures: Evidence from Czech Local Governments

The paper analyzes local political cycle in Czech municipalities over the period between 1997 and 2013. We apply the system and the difference GMM estimators to detect electoral manipulation in current and capital expenditures in electoral and pre-electoral years. Primarily, we estimate the effects for expenditure levels but to check the robustness we re-estimate the model for spending shares. We have found that the size of municipalities matters, and unsurprisingly, small municipalities do not increase spending in such an extent as bigger municipalities, though big municipalities tend to have lower share of capital spending before elections. Leftist governments tend to attract votes by increasing current expenditures, while rightist governments increase rather capital expenditures. On the one hand, the share of votes of the mayor's party in previous elections increases pre-election capital spending, on the other hand, its winning margin works in the opposite direction. Finally, the more terms a mayor has been in office, the lower is capital spending in pre-electoral year.