Do electoral cycles affect local financial health?

Abstract

The main purpose of this study is to determine whether the proximity to elections impacts on the financial health of local governments. This constitutes an original approach to understand the importance of monitoring politicians' actions, especially when elections are coming. Using a sample of 153 Spanish local governments for the period 1988–2008, we find the existence of an electoral cycle, since electoral proximity damages the financial health of local governments. Concretely, the use of public resources with the opportunistic aim of being re-elected damages the local solvency, the capacity to provide public services, and the capacity of preserving social welfare, since municipalities becoming more dependent on resources from other levels of government. Furthermore, we find a partisan cycle too, since municipalities governed by left-wing parties are usually under worse financial health than other municipalities because they lose capacity to adapt to economic and financial changes.

Keywords:

• financial health
• local governments
• political ideology
• electoral moment

Notes on contributors

Isabel-María García-Sánchez is Lecture of Accounting at the University of Salamanca, where she earned her Ph.D. in Business. Her research interests are public sector reforms and corporate social responsibility. Her work has been published in such journals as the Longe Range Planning, Journal of Business Ethics, Journal of Productivity Analysis, or Ecological Indicators.

Noemi Mordán is an External Researcher, who earned her master degree on Business at the University of Salamanca. She is focused on public sector reforms, especially on financial health, financial distress, accountability, and information transparency. Her work has been published in international journals, such as Social Indicators Research or Public Budgeting & Finance.

Beatriz Cuadrado-Ballesteros is Assistant Professor of Accounting at the University of Salamanca, where she earned her Ph.D. in Business. Her research interests are public sector reforms. In particular she focuses on informative transparency, accountability, financial distress, and citizens' quality of life. Her work has been published in such journals as the International Public Management Journal, Online Information Review, Government Information Quarterly, or the International Review of Administrative Sciences.

Notes

1. There were 8116 local governments in Spain on 1 January 2011.

2. This law has been updated in the last years, due to financial problems that Spanish governments (local, regional, and national governments) are suffering nowadays. First, it was updated in 2007 by the Royal Legislative Decree 2/2007 and in 2012 it was updated again by the Act 2/2012 of Budgetary Stability and Financial Sustainability.

3. To go into this topic, see Hibbs (1977), Frey and Schneider (1978a, 1978b), Alesina and Rosenthal (1994), Schmidt (1996), Cusack (1997), Allers, De Haan, and Sterks (2001), Kneebone and Mckenzie (2001), Escudero and Prior (2002), Tellier (2006), Benito and Bastida (2008), Bastida, Benito, and Guillamón (2009), and García-Sánchez, Prado-Lorenzo, and Cuadrado-Ballesteros (2011).