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Fiscal performance and elections in the context of a transition economy

Lami, Endrit, IMAMI, Drini, PUGH, Geoff and HASHI, Iraj (2021) Fiscal performance and elections in the context of a transition economy. Economic Systems. ISSN 0939-3625 (In Press)

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Abstract or description

It is widely accepted that, in democratic societies, incumbent governments may use various means such as discretionary spending to increase their chances of re-election. In the context of potential budget constraints (e.g. large debt), the incumbent may consider alternative means. Tax revenue performance could be one such means prone to incumbents’ electoral manipulations, particularly in the case of transition countries with a weak institutional framework. Investigating Albania, we show that fiscal performance, measured by monthly tax revenues, is poor before elections, especially in the case of elections that result in political rotation. Prior to “all elections” we observe a reduction in tax revenue growth ranging from 3.2 percentage points during the twelve months before elections to 4.0 percentage points during the six months before elections. This implies more than a halving of fiscal performance as compared to its long-term “natural” or average rate. Moreover, the deterioration in performance is considerably larger, double to triple, before “rotation elections”. After elections, improved fiscal performance is observed. The key to reducing fiscal performance deterioration associated with elections is to establish rules and institutional supervision (independent or bipartisan) that reduce the discretion of tax authorities.

Item Type: Article
Uncontrolled Keywords: political budget cycles; fiscal performance; transition economies
Faculty: School of Business, Leadership and Economics > Accounting, Finance and Economics
Depositing User: Geoff PUGH
Date Deposited: 01 Apr 2021 10:42
Last Modified: 01 Apr 2021 10:42
URI: http://eprints.staffs.ac.uk/id/eprint/6874

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