Political Budget Cycles: Evidence from Italian Cities
The introduction of a new real estate taxes in Italy in 2011 generated a natural experiment, which is useful to test political budget cycles, i.e. the strategic choice of fiscal variables in relation to elections. We do find substantial evidence of political budget cycles, with municipalities choosing lower tax rates when close to elections. We observe this budget cycle only for smaller municipalities where the tax was more likely to be the single most important issue for the local government. Cities close to elections with large deficits did not set lower rates before elections, probably because they felt the binding constraints of budget rules.
We thank Ugo Troiano, Paolo Pinotti, the IFEL Foundation and Stefano Gagliarducci for generous help with the data. Massimo Bordignon, Raj Chetty, Anastasia Driva, Nicola Fontana and Tommaso Nannicini offered useful comments. We also thank participants in the seminars at Washington University St Louis and Leicester University. Giorgio Saponaro and Giacomo Lanzani provided excellent research assistantship. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Alberto Alesina & Matteo Paradisi, 2017. "Political budget cycles: Evidence from Italian cities," Economics & Politics, vol 29(2), pages 157-177. citation courtesy of