Election-induced fiscal policy cycles in democratic and non-democratic emerging market and developing economies

We examine a broad set of fiscal outcomes around elections for 104 emerging market and developing economies covering the years 1993–2022, probe for differences between democracies and non-democracies, and estimate the degree to which fiscal deteriorations are reversed after elections. We show three patterns. First, primary deficits rise statistically significantly during elections by 0.6 percentage points of GDP. Primary spending, especially the government wage bill, also rises while indirect tax revenues fall. Second, these deteriorations occur in democracies and non-democracies alike. Third, the deterioration in primary deficits is not reversed after elections, and the deterioration in primary spending is partially reversed after the election, mainly through cuts in capital spending. This pattern, which holds for democracies and non-democracies, implies that deficits in emerging market and developing economies ratchet up over the course of several election cycles. Finally, we find that strong checks and balances, fiscal rules, and the presence of an IMF program partly mitigate the impact of elections on fiscal positions.