Elections, Checks and Balances, and Government Expenditures: Empirical Evidence for Japan, South Korea, and Taiwan
Previous studies on political budget cycles (PBCs)
implicitly assume the executive has full discretion power over fiscal
policy, neglecting the role of checks and balances of the legislature.
This paper goes beyond traditional PBCs models and sheds light on
the case study of Japan, South Korea, and Taiwan over the 1988-2007
periods. Based on the results, we find no evidence of electoral impacts
on the public expenditures in South Korean and Taiwan's
congressional elections. We also noted that PBCs are found on
Taiwan-s government expenditures during our sample periods.
Furthermore, the results also show that Japan-s legislature has a
significant checks and balances on government-s expenditures.
However, empirical results show that the legislature veto player in
Taiwan neither has effect on the reduction of public expenditures, nor
has the moderating effect over Taiwan-s political budget cycles, albeit
that they are statistically insignificant.We suggest that the existence of
PBCs in Taiwan is due to a weaker systemof checks and balances. Our
conjecture is that Taiwan either has no legislative veto player or has
observed low compliance to the law during the time period examined
in our study.
[1] W. Nordhaus, "The political business cycle," Review of Economic Studies,
1975, vol. 42, pp. l69-190.
[2] K. Rogoff, and A. Sibert, "Elections and macroeconomic policy cycles,"
Review of Economic Studies, 1988, vol. 55, pp. 1-16.
[3] L. Schuknecht, "Political business cycles and fiscal policies in
developing countries," KYKLOS, 1996, vol. 49, pp. 155-170.
[4] M. Hallerberg, and J. von Hagen, "Electoral institutions, cabinet
negotiations, and budget deficits in the European Union," in Fiscal
Institutions and Fiscal Performance, J. Poterba and J. von Hagen, Ed.
University of Chicago Press, Chicago, 1999.
[5] J. Alt, and D. Lassen, "Transparency, political polarization and political
budget cycles in OECD countries," American Journal of Political
Science, 2006, vol. 50, pp. 530-550.
[6] A. Alesina, and G. Tabellini, "Why do politicians delegate?" NBER
working paper, no.1531, 2005.
[7] M. Shi, and J. Svensson, "Political budget cycles: do they differ across
countries and why?" Journal of Public Economics, 2006, vol.90, pp.
1367-1389.
[8] A. Alesina, and N. Roubini, Political Cycles and the Macroeconomy.
Cambridge, MA: MIT press, 1997.
[9] R. Alesina, H. Hausmann, and E. Stein, "Budget institutions and fiscal
performance in Latin America," Journal of Development Economics,
1999, vol. 59, no. 2, pp. 253-273.
[10] A. Block, "Political business cycles, democratization, and economic
reform: the case of Africa,"Journal of Development Economics, 2002,
vol. 67, pp. 205-228.
[11] M. d. l. A. Gonzales, "Do changes in democracy affect the political
budget cycle? evidence from Mexico," Review of Developmental
Economics, 2002, vol. 6, no. 2, pp. 204-224.
[12] J. Klomp, and J. De Haan, "Do political budget cycles really exist?"
Applied Economics, 2013, vol. 45, pp. 329-341.
[13] M. Kraemer, "Electoral budget cycles in Latin America and Caribbean:
incidence, causes and political futility," Inter-American Development
Bank working paper, Washington DC, 1997.
[14] A. Brender, "The effect of fiscal performance on local government
election results in Israel: 1989-1998," Journal of Public Economics,
2003, vol. 87, pp. 2187-2205.
[15] A. Drazen, and M. Eslava, "Electoral manipulation via expenditure
composition: theory and evidence," NBER working paper, no. 11085.
2005.
[16] A. Drazen, and M. Eslava, "Electoral manipulation via voter-friendly
spending: theory and evidence," Journal of Development Economics,
2010, vol. 32, pp. 39-52.
[17] L. Schuknecht, "Fiscal policy cycles and public expenditure in
developing countries," Public Choice, 2000, vol. 102, pp. 115-30.
[18] A. Drazen, "The political business cycles after 25 years,"in NBER
macroeconomics annual, B. Bernake, and K. Rogoff, Ed. Boston: MIT
Press, 2001, pp. 75-117
[19] T. Persson, and G. Tabellini, Do electoral cycles differ across political
systems, mimeo, IIES, Stockholm University, 2002.
[20] O. Diallo, "Tortuous road toward countercyclical fiscal policy: Lessons
from democratized sub-Saharan Africa," Journal of Policy Modeling,
2009, vol. 31, pp. 36-50.
[21] A. Brender, and A. Drazen, "Political budget cycles in new versus
established democracies," Journal ofMonetary Economics, 2005, vol. 52,
pp. 1271-1295.
[22] T. Persson, and G. Tabellini, "The economic effect of constitutions: what
do the data say,"Cambridge, MA: MIT press, 2003.
[23] T. Persson, and G. Tabellini, "Constitutional rules and fiscal policy
outcomes," The American Economic Review, 2004, vol. 94, no. 1, pp.
25-45.
[24] J. von Hagen, and I. Harden, "Budget processes and commitment to fiscal
discipline," European Economic Review, 1995, vol. 39, pp. 771-79.
[25] J. Henisz, "Political institutions and policy volatility," Economics and
Politics, 2004, vol. 16, no. 1, pp. 1-27.
[26] M. Streb, D. Lema, and G. Torrens, "Checks and balances on political
budget cycles: cross-country evidence,"KYKLOS, 2009, vol. 62, no. 3, pp.
426-447.
[27] S. Fabrizio, and A. Mody, "Can budget institutions counteract political
indiscipline?"Economic Policy, pp. 689-739, October 2006.
[28] M. Streb, and G. Torrens, "Making rules credible: divided government
and political budget cycles," Working paper, Universidad del Cema,
2009.
[29] B. Albuquerque, "Fiscal institutions and public spending volatility in
Europe," Estudos e Documentos de Trabalho working papers, 2010.
[30] J. Henisz, POLCON 2005 codebook, manuscript, University of
Pennsylvania, 2005.
[31] C. W. J. Granger, and P. Newbold, "Spurious regression in
econometrics," Journal of Econometrics, 1974, vol. 2, pp. 111-120.
[32] R. Engle, and C. W. J. Granger, "Cointegration and Error Correction:
Representation, Estimation, and Testing," Econometrica, 1987, vol. 55,
pp. 251-276.
[33] A. Dickey, and W. Fuller, "Likelihood ratio statistics for autoregressive
time series with a unit root," Econometrica, 1981, vol.49, pp. 1057-1072.
[34] C. Phillips, and P. Perron, "Testing for a unit root in time series
regression," Biometrika, 1988, vol. 75, pp. 335-346.
[35] D. Kwiatkowski, C. Phillips, P. Schmidt and Y. Shin, "Testing the null
hypothesis of stationarity against the alternative of a unit root," Journal of
Econometrics, 1992, vol. 1, pp. 159-178.
[36] P. Perron, "The great crash, the oil price shock and the unit root
hypothesis,"Econometrica, 1989, vol. 57, no. 6, pp. 1361-1401.
[37] P. Perron, "Testing for a unit root in a time series with a changing mean,"
Journal of Business Economics and Statistics, 1990, vol. 8, no. 2, pp.
153-162.
[38] E. Zivot, and D.W. K. Andrews, "Further evidence on the great crash, the
oil-price shock, and the unit root hypothesis," Journal of Business and
Economic Statistics, 1992, vol. 10, pp. 251-270.
[39] A. Zellner, "An efficient method of estimating seemingly unrelated
regression and tests for aggregation bias," Journal of the American
Statistical association, pp. 348-368, June, 1962.
[1] W. Nordhaus, "The political business cycle," Review of Economic Studies,
1975, vol. 42, pp. l69-190.
[2] K. Rogoff, and A. Sibert, "Elections and macroeconomic policy cycles,"
Review of Economic Studies, 1988, vol. 55, pp. 1-16.
[3] L. Schuknecht, "Political business cycles and fiscal policies in
developing countries," KYKLOS, 1996, vol. 49, pp. 155-170.
[4] M. Hallerberg, and J. von Hagen, "Electoral institutions, cabinet
negotiations, and budget deficits in the European Union," in Fiscal
Institutions and Fiscal Performance, J. Poterba and J. von Hagen, Ed.
University of Chicago Press, Chicago, 1999.
[5] J. Alt, and D. Lassen, "Transparency, political polarization and political
budget cycles in OECD countries," American Journal of Political
Science, 2006, vol. 50, pp. 530-550.
[6] A. Alesina, and G. Tabellini, "Why do politicians delegate?" NBER
working paper, no.1531, 2005.
[7] M. Shi, and J. Svensson, "Political budget cycles: do they differ across
countries and why?" Journal of Public Economics, 2006, vol.90, pp.
1367-1389.
[8] A. Alesina, and N. Roubini, Political Cycles and the Macroeconomy.
Cambridge, MA: MIT press, 1997.
[9] R. Alesina, H. Hausmann, and E. Stein, "Budget institutions and fiscal
performance in Latin America," Journal of Development Economics,
1999, vol. 59, no. 2, pp. 253-273.
[10] A. Block, "Political business cycles, democratization, and economic
reform: the case of Africa,"Journal of Development Economics, 2002,
vol. 67, pp. 205-228.
[11] M. d. l. A. Gonzales, "Do changes in democracy affect the political
budget cycle? evidence from Mexico," Review of Developmental
Economics, 2002, vol. 6, no. 2, pp. 204-224.
[12] J. Klomp, and J. De Haan, "Do political budget cycles really exist?"
Applied Economics, 2013, vol. 45, pp. 329-341.
[13] M. Kraemer, "Electoral budget cycles in Latin America and Caribbean:
incidence, causes and political futility," Inter-American Development
Bank working paper, Washington DC, 1997.
[14] A. Brender, "The effect of fiscal performance on local government
election results in Israel: 1989-1998," Journal of Public Economics,
2003, vol. 87, pp. 2187-2205.
[15] A. Drazen, and M. Eslava, "Electoral manipulation via expenditure
composition: theory and evidence," NBER working paper, no. 11085.
2005.
[16] A. Drazen, and M. Eslava, "Electoral manipulation via voter-friendly
spending: theory and evidence," Journal of Development Economics,
2010, vol. 32, pp. 39-52.
[17] L. Schuknecht, "Fiscal policy cycles and public expenditure in
developing countries," Public Choice, 2000, vol. 102, pp. 115-30.
[18] A. Drazen, "The political business cycles after 25 years,"in NBER
macroeconomics annual, B. Bernake, and K. Rogoff, Ed. Boston: MIT
Press, 2001, pp. 75-117
[19] T. Persson, and G. Tabellini, Do electoral cycles differ across political
systems, mimeo, IIES, Stockholm University, 2002.
[20] O. Diallo, "Tortuous road toward countercyclical fiscal policy: Lessons
from democratized sub-Saharan Africa," Journal of Policy Modeling,
2009, vol. 31, pp. 36-50.
[21] A. Brender, and A. Drazen, "Political budget cycles in new versus
established democracies," Journal ofMonetary Economics, 2005, vol. 52,
pp. 1271-1295.
[22] T. Persson, and G. Tabellini, "The economic effect of constitutions: what
do the data say,"Cambridge, MA: MIT press, 2003.
[23] T. Persson, and G. Tabellini, "Constitutional rules and fiscal policy
outcomes," The American Economic Review, 2004, vol. 94, no. 1, pp.
25-45.
[24] J. von Hagen, and I. Harden, "Budget processes and commitment to fiscal
discipline," European Economic Review, 1995, vol. 39, pp. 771-79.
[25] J. Henisz, "Political institutions and policy volatility," Economics and
Politics, 2004, vol. 16, no. 1, pp. 1-27.
[26] M. Streb, D. Lema, and G. Torrens, "Checks and balances on political
budget cycles: cross-country evidence,"KYKLOS, 2009, vol. 62, no. 3, pp.
426-447.
[27] S. Fabrizio, and A. Mody, "Can budget institutions counteract political
indiscipline?"Economic Policy, pp. 689-739, October 2006.
[28] M. Streb, and G. Torrens, "Making rules credible: divided government
and political budget cycles," Working paper, Universidad del Cema,
2009.
[29] B. Albuquerque, "Fiscal institutions and public spending volatility in
Europe," Estudos e Documentos de Trabalho working papers, 2010.
[30] J. Henisz, POLCON 2005 codebook, manuscript, University of
Pennsylvania, 2005.
[31] C. W. J. Granger, and P. Newbold, "Spurious regression in
econometrics," Journal of Econometrics, 1974, vol. 2, pp. 111-120.
[32] R. Engle, and C. W. J. Granger, "Cointegration and Error Correction:
Representation, Estimation, and Testing," Econometrica, 1987, vol. 55,
pp. 251-276.
[33] A. Dickey, and W. Fuller, "Likelihood ratio statistics for autoregressive
time series with a unit root," Econometrica, 1981, vol.49, pp. 1057-1072.
[34] C. Phillips, and P. Perron, "Testing for a unit root in time series
regression," Biometrika, 1988, vol. 75, pp. 335-346.
[35] D. Kwiatkowski, C. Phillips, P. Schmidt and Y. Shin, "Testing the null
hypothesis of stationarity against the alternative of a unit root," Journal of
Econometrics, 1992, vol. 1, pp. 159-178.
[36] P. Perron, "The great crash, the oil price shock and the unit root
hypothesis,"Econometrica, 1989, vol. 57, no. 6, pp. 1361-1401.
[37] P. Perron, "Testing for a unit root in a time series with a changing mean,"
Journal of Business Economics and Statistics, 1990, vol. 8, no. 2, pp.
153-162.
[38] E. Zivot, and D.W. K. Andrews, "Further evidence on the great crash, the
oil-price shock, and the unit root hypothesis," Journal of Business and
Economic Statistics, 1992, vol. 10, pp. 251-270.
[39] A. Zellner, "An efficient method of estimating seemingly unrelated
regression and tests for aggregation bias," Journal of the American
Statistical association, pp. 348-368, June, 1962.
@article{"International Journal of Business, Human and Social Sciences:61233", author = "Yuan-Hong Ho and Chiung-Ju Huang", title = "Elections, Checks and Balances, and Government Expenditures: Empirical Evidence for Japan, South Korea, and Taiwan", abstract = "Previous studies on political budget cycles (PBCs)
implicitly assume the executive has full discretion power over fiscal
policy, neglecting the role of checks and balances of the legislature.
This paper goes beyond traditional PBCs models and sheds light on
the case study of Japan, South Korea, and Taiwan over the 1988-2007
periods. Based on the results, we find no evidence of electoral impacts
on the public expenditures in South Korean and Taiwan's
congressional elections. We also noted that PBCs are found on
Taiwan-s government expenditures during our sample periods.
Furthermore, the results also show that Japan-s legislature has a
significant checks and balances on government-s expenditures.
However, empirical results show that the legislature veto player in
Taiwan neither has effect on the reduction of public expenditures, nor
has the moderating effect over Taiwan-s political budget cycles, albeit
that they are statistically insignificant.We suggest that the existence of
PBCs in Taiwan is due to a weaker systemof checks and balances. Our
conjecture is that Taiwan either has no legislative veto player or has
observed low compliance to the law during the time period examined
in our study.", keywords = "Checks and balances, compliance to the law, political
budget cycles, veto player.", volume = "6", number = "6", pages = "1503-6", }
