Constraints, competition, and competitiveness: explaining the non-linear effect of democratization on political budget cycles

Abstract

The literature on political budget cycles (PBCs) does not offer a full-fledged theory about the effect of democratization. However, it does imply a non-linear effect along the regime spectrum: positive at the autocratic end, negative at the democratic end. We theoretically develop and empirically test this implication by pointing to two countervailing effects of democratization:executive constraintsandpolitical competition. While the former contains PBCs, the latter stimulates them. Because of their empirical covariation, PBCs occur primarily in hybrid regimes where the decision-making powers of the executive are relatively unrestricted and politics is relatively competitive. We also show that while executive constraints and political competition condition PBCs, what triggers the fluctuations iselectoral competitiveness. Only when incumbents fear electoral defeat, do they create PBCs. The study is based on novel data on public spending in 112 countries, covering the entire regime spectrum over the period from 1960 to 2006.