Property rights institutions and the political budget cycle

Abstract

This study examines the impact of property rights institutions on the political budget cycle. A simple equilibrium model of political budget cycles suggests that property rights institutions implicitly constrain the electoral cycle by making pre-election fiscal manipulation less effective in gaining votes. Using a panel of 64 democracies over the period 1987-2016, we confirm that a political budget cycle is conditional on the strength of property rights institutions. Countries with stronger property rights institutions experience a smaller electoral cycle. Our findings imply that property rights institutions may provide a socially efficient mechanism for protecting the welfare of taxpayers.