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The Policy Impact of Economic Development: Clientelism and Political Budget Cycles

Written by Francesco Stolfi

Political Budget Cycles (PBCs), namely the manipulation of taxation or government spending close to elections, are an enduring topic in the study of economic policy-making. The literature explains PBCs based on the fact that politicians are better informed than most voters and thus can use the manipulation of fiscal variables to essentially fool the public into thinking they are more efficient than they actually are. In a recent article in the Journal of European Public Policy, Mark Hallerberg and I propose a quite different explanation, one that does not depend on voters being naïve. Rather, we argue that a source of variation in the extent of PBCs is, via the effect of clientelism, the level of economic development.

Where voters have few economic opportunities outside those provided by the government, they will be highly dependent on the incumbents for their income. The latter can thus use clientelistic tools, such as their control over employment in the public sector, for electoral purposes.

We assess this argument with a study of health personnel spending in Italy, an OECD country with vast territorial differences in economic development. We track how personnel spending in the health sector, by far the largest competence of the Italian regions, changed immediately before or after national and regional elections between 1989 and 2012.

Not only do we find a significant impact of elections on personnel spending, but we also show that this impact is significantly larger in poorer regions. These spend more for health personnel close to elections even as the quality of the health services they provide is much worse than that provided by the regions where these electorally-driven spending increases are much lower. The following figure (Figure 1) gives an idea of the impact of economic development on the size of the electoral spending cycle, with reference in particular to cycles before national elections:

Figure 1. Health Personnel Spending and Income

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The figure (logged per capita income is on the X axis, while the Y axis has the logged change in health personnel spending in a full year before national elections) shows how the size of the personnel spending increase before national elections gets smaller for higher levels of regional per capita income. The effect of income is large: moving from one standard deviation below the mean to the mean value for per capita logged income reduces the increase in pre-electoral personnel spending from 11% to 4%.

We believe that these findings are important well beyond the study of PBCs. The association between economic development and clientelistic relationships between dependent voters and political elites suggests that those who are more vulnerable end up supporting a system that perpetuates their own vulnerability, as shown by the lower quality of public health services in Italy’s more clientelistic regions.

Moreover, our research suggests that income differences have in impact on how policies are implemented even within the same country. This points to the importance of studying how economic development affects the operation of public policies more broadly, even in the context of European countries.

Finally, our research focused on territorial differences in income; in light of the long-standing increase in income inequality in advanced countries, an important avenue for future research is how increasing inequality in society affects how policies are formulated and implemented.

Francesco Stolfi is Assistant Professor of Political Science at the University of Nottingham Malaysia Campus. Image credit: CC by Wikipedia Commons.

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