local government finance

Political Business Cycles in Taiwan Local Fiscal Budget: An Estimation and Comparison between Fixed Effect and Random Effect Models

The incumbents in a democracy tend to manipulate the economy by adopting expansionary fiscal policy to stimulate short-run expansion during electoral periods. By doing so, the macroeconomic performance is affected by the election and it is so called the political business cycle. In order to test whether policy instruments are affected by the election or not, this paper focuses on the electoral and partisan cycles in local budgets in Taiwan Province between 1988 and 2003. More specifically, we try to explore the scenario of political business cycle at local governments.

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