Political budget cycles and democratization in Latin America, 1973-2008

Abstract

We test for political budget cycles in a panel of eighteen Latin American democracies from 1973 to 2008. Recent studies have argued that the pattern of deficit cycles in a large cross-section of countries is driven by the experience of ‘‘new democracies.” As a large share of the countries that underwent democratization during this period are in Latin America, we seek to verify if these patterns are robust using an updated data set on fiscal expenditures, democratization and elections. Our results suggest that political budget cycles are driven by democratic transitions in Latin America. Our findings are robust to whether objective judgment and observational criteria of democracy and democratic transitions are employed, or measures based on vague and arbitrary operational rules. Furthermore, we show that the deficit cycle in transitional Latin American democracies appears to be driven by lower election-year revenue collection rather than an increase in public expenditures.