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Procyclical government spending: a public choice analysis

Research output: Contribution to journalJournal articlepeer-review

Published
<mark>Journal publication date</mark>1/03/2013
<mark>Journal</mark>Public Choice
Issue number3-4
Volume154
Number of pages16
Pages (from-to)243-258
Publication StatusPublished
Early online date21/07/11
<mark>Original language</mark>English

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