The Econometrics Journal Newsletter 10: Impact Factor Rises to 2.139
29 Jul 2020
In the year before a local election, municipal governments in Italy spend roughly a third more than in the election year, according to research by Luca Repetto, published in the December 2018 issue of The Economic Journal.
What’s more, the politicians in office focus particularly on visible expenditure categories, such as roads and parks. This ‘political budget cycle’ is strongest in areas where voters are less informed and have lower social and human capital.
But the study also indicates a potential solution: giving voters more information – for example, by requiring the early disclosure of municipal budget statements – reduces the size of the political budget cycle. Such a reform, introduced in Italy in 2008, was much more effective in areas where the presence of local newspapers was stronger.
The research notes that most of the electoral advantage that politicians get from manipulating spending comes from the fact that they have more information than voters. When a new park is built just before elections, voters can directly observe the benefits that derive from using it, but they seldom know the costs.
Unfortunately, this piece of information is often released with delay and buried in the small print of the municipal budgets. As a consequence, most of the time voters go to the polls with little idea about what the incumbent government has done and how public money has been used.
A 2008 reform changed this. By requiring all municipalities to publish their budgets before the date of municipal elections, it allowed the opposition, the local media and voters to get a clearer idea of how much was spent and how the spending was financed.
A simple analysis of newspaper articles’ content and Google Trends data shows that both voters and the local media pay close attention to this information, reacting to it with articles and an increase in web searches as soon as the budget is released.
After the reform, the political budget cycle became substantially smaller, with the pre-election year effect decreasing by more than a third. The effect of giving voters information appears to be powerful: the reform was much more effective in areas where the presence of local newspapers was stronger, where the budget cycle almost disappeared.
These results suggest that giving voters information about the actions of their politicians can have important consequences. A simple measure such as requiring the early disclosure of municipal budget statements implies no additional costs for the government, but can substantially reduce the incentives for strategic behaviour.
Given that institutional settings such as the one in place in Italy are ubiquitous, this measure can be implemented in other countries with little legislative effort. Improving voters’ awareness of politicians’ actions not only promises to improve their own choices in the polls, but could effectively improve the behaviour of the politicians themselves.