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Procyclical government spending: a public choice analysis

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  • Andrew Abbott
  • Philip Jones
Abstract
Procyclical government spending occurs when government expenditures increase at a faster rate than income in an economic upturn but fall at a faster rate in a recession. Voracity effects occur when competition for increased spending proves more effective as national income increases. Public choice theory can be applied to describe the distribution of fiscal power across different tiers of government to shed insight into competition for intergovernmental transfers. Politicians have electoral incentives to press for intergovernmental transfers but they also have electoral incentives to signal their ability to manage the economy. With this mix of incentives, the prediction is that intergovernmental transfers will be procyclical and that sub-central government spending will be more procyclical than central government spending. Public choice analysis of pressure for increased public spending predicts a specific pattern of cyclical government spending. This pattern can be observed when analyzing government expenditures in 20 OECD countries between 1995 and 2006. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Andrew Abbott & Philip Jones, 2013. "Procyclical government spending: a public choice analysis," Public Choice, Springer, vol. 154(3), pages 243-258, March.
    • Handle: RePEc:kap:pubcho:v:154:y:2013:i:3:p:243-258
    DOI: 10.1007/s11127-011-9816-9
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    Cited by:

    1. Meloni, Osvaldo, 2016. "Turning a blind eye to policy prescriptions. Exploring the sources of procyclical fiscal behavior at subnational level," MPRA Paper 70541, University Library of Munich, Germany.
    2. Joël Cariolle & Petros G Sekeris, 2021. "How export shocks corrupt: theory and evidence," Working Papers hal-03164648, HAL.
    3. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2022. "On the effects of intergovernmental grants: a survey," Working Papers. Collection A: Public economics, governance and decentralization 2204, Universidade de Vigo, GEN - Governance and Economics research Network.
    4. Manuel E. Lago & Santiago Lago-Peñas & Jorge Martinez-Vazquez, 2024. "On the effects of intergovernmental grants: a survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 856-908, June.
    5. Andrew Abbott & Philip Jones, 2016. "Fiscal Illusion and Cyclical Government Expenditure: State Government Expenditure in the United States," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(2), pages 177-193, May.
    6. Konstantinos Konstantakis & Theofanis Papageorgiou & Panayotis Michaelides & Efthymios Tsionas, 2015. "Economic Fluctuations and Fiscal Policy in Europe: A Political Business Cycles Approach Using Panel Data and Clustering (1996–2013)," Open Economies Review, Springer, vol. 26(5), pages 971-998, November.
    7. McBrayer Markie & Shea Patrick E. & Kirkland Justin H., 2018. "The Financial Crisis, Fiscal Federalism, and the Creditworthiness of US State Governments," Statistics, Politics and Policy, De Gruyter, vol. 9(1), pages 1-30, June.
    8. Jing Xing & Clemens Fuest, 2018. "Central-local government fiscal relations and cyclicality of public spending: evidence from China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 946-980, August.
    9. Abbott, Andrew & Cabral, René & Jones, Philip & Palacios, Roberto, 2015. "Political pressure and procyclical expenditure: An analysis of the expenditures of state governments in Mexico," European Journal of Political Economy, Elsevier, vol. 37(C), pages 195-206.
    10. Andrew Abbott & Philip Jones, 2021. "The cyclicality of government foreign-aid expenditure: voter awareness in “good” times and in “bad”," Public Choice, Springer, vol. 186(1), pages 97-117, January.
    11. Andrew Abbott & Philip Jones, 2014. "Pressures to Increase Public Expenditure and Patterns of Procyclical Expenditure," Economic Issues Journal Articles, Economic Issues, vol. 19(2), pages 39-54, September.
    12. Robert C. M. Beyer & Lazar Milivojevic, 2021. "Fiscal policy and economic activity in South Asia," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 340-358, February.
    13. Navarat Temsumrit, 2020. "Does Democracy Affect Cyclical Fiscal Policy? Evidence From Developing Countries," PIER Discussion Papers 125, Puey Ungphakorn Institute for Economic Research.
    14. Abbott, Andrew & Jones, Philip, 2021. "Government response to increased demand for public services: The cyclicality of government health expenditures in the OECD," European Journal of Political Economy, Elsevier, vol. 68(C).
    15. Yadawananda Neog, 2019. "Does Fiscal Spending Promote Economic Growth in India? An Application of Toda-Yamamoto Causal Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 23-40.
    16. Deepak Kumar Behera & Ranjan Kumar Mohanty & Umakant Dash, 2020. "Cyclicality of public health expenditure in India: role of fiscal transfer and domestic revenue mobilization," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(1), pages 87-110, March.
    17. Nguyen Van Bon, 2022. "Counter-cyclical Fiscal Policy in Developed Countries: Does Governance Hinder?," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(6), pages 482-508.
    18. Holmgren, Johan & Merkel, Axel, 2017. "Much ado about nothing? – A meta-analysis of the relationship between infrastructure and economic growth," Research in Transportation Economics, Elsevier, vol. 63(C), pages 13-26.

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    More about this item

    Keywords

    Business cycles; Fiscal policy; Voracity effects; Volatility; E62; H50; H60; H70;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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