Political budget cycles, incumbency advantage, and propaganda

Abstract

This paper combines incumbency advantage and political budget cycle theory. An opportunistic politician is given two instruments: deficit-financed transfers and propaganda. Unlike earlier analytical models, but in accordance with the empirical literature, government manipulations do actually improve re-election chances. However, the optimal level of government manipulation depends on country characteristics, in particular the competence dispersion among potential candidates. This may explain why it is easier to detect political budget cycles in, for instance, developing countries or new democracies. Results are robust to alternative competence distribution and propaganda cost assumptions.