Principal investigator: Eduarda Miller de Figueiredo
Article title: The influence of reelection on subnational fiscal policies.
Article authors: Fernanda L. Marciniuk and Mauricio S. Bugarin
Location of the intervention: Brazil
Sample size: 5.568 municipalities.
Sector: Others
Type of interventionEffects of reelection
Main variable of interestFiscal indicators and the coefficients of the variables that identify mayors who expect reelection and those who do not expect reelection.
Assessment methodPanel Data and Differences in Differences
Policy Problem
The literature calls it “"Titular Effect" A candidate who already holds the position of mayor and is running for reelection thus competes in the elections in a more favorable position than their competitors. This is because, in addition to already having greater political visibility, they also have the administrative structure of public resources at their disposal (Ferejohn, 1977; Uppa, 2008). Based on this, mayors use these privileges for self-promotion, and thus, reelection would generate an irresponsible increase in spending in municipalities with mayors running for reelection (Brambor and Ceneviva, 2012).
The so-called “Political Business Cycle" or "Political-Budgetary CycleThis, also evidenced by the literature, is an incentive that motivates incumbent politicians to intensify their spending in the periods leading up to elections, aiming to increase the probability of reelection (Nordhaus, 1975; Sakurai and Menezes-Filho, 2011).
On the other hand, reelection also serves as a mechanism for controlling and punishing bad governance (Nery, 2013). Since a single term limits the capacity to carry out public services and works, it encourages discontinuity in public administration. In other words, these are theoretical arguments that define reelection as a mechanism for generating transparency and democratic control.
Assessment Context
In Brazil, evidence shows that there is an increase in current and total spending in municipalities during election years, and that higher spending increases the likelihood of reelection or the election of a political ally at the municipal level (Sakurai and Menezes-Filho, 2008 and 2011). Furthermore, Ferraz and Finan (2010) demonstrate that mayors with expectations of remaining in office for another term will, on average, be less corrupt than mayors without incentives for reelection.
Meneguin and Bugarin (2001) construct a dynamic model that measures the effect of reelection on Brazilian subnational government spending decisions. They demonstrate that there is a reduction in the marginal benefit of a deficit in the first term when reelection is certain. Specifically, the higher the probability of reelection, the lower the willingness to have expenses exceeding revenue, given that the governor himself will have to bear the deficits in the subsequent term.
Policy Details
The Fiscal Responsibility Law (LRF) establishes public finance standards aimed at fiscal responsibility. It requires public managers to observe limits, conditions, and parameters for revenue and expenditure, preventing successive deficits in government accounts. Thus, the LRF sets a prudential limit of 57% and a ceiling limit of 60% of net current revenue for total personnel expenses in municipalities.
However, even so, municipalities have committed a large part of their budget to paying public employees. During 2001-2012, municipalities committed, on average, 49% of their net current revenues to personnel payments.
Considering this entire situation, the study empirically analyzed the influence of the mayor's reelection on the fiscal sustainability of the entity.
Methodology Details
To analyze the potential impacts of reelection on municipal fiscal management, the authors used two models: (i) Classical Panel Data Models, for a set of 5.568 municipalities (2001-2012), and (ii) Difference-in-Differences, for 2.006 municipalities (2004-2008). For this analysis, the dependent variables were the municipality's fiscal indicators and the coefficients of the variables that identify first-term mayors with expectations of reelection and those without expectations of reelection, as shown below:
Thus, a statistical significance in ou
This signifies a distinct behavior on the part of a first-term mayor compared to a second-term mayor.
Using data from the Superior Electoral Court (TSE), a set of control variables was constructed from a political standpoint: party political alignment, fragmentation of the legislature, competitiveness indicator in the executive branch, popular participation, and party ideology. A set of variables was also created regarding the personal characteristics of the mayors: gender, education level, and age. Finally, a set of control variables was created considering the economic aspects of the municipalities: poverty rate, Gini index, illiteracy rate, and population.
Results
The results from the panel data approach indicate that municipalities where mayors are serving their first term tend to have a positive effect on the primary surplus. In other words, a mayor running for reelection generates, on average, a primary surplus 0,11% higher than a mayor serving their second term. In which the mayors of They have a stronger effect than their counterparts in
, with 0,07% of the municipal GDP. This result corroborates the findings of Meneguin et al. (2005), who concluded that the mayor is more responsible with the municipality's fiscal policy when there is a possibility of reelection, given that he himself will have to bear the future burden of public debt.
Another finding is the fact that mayors of They show an average increase of 0,059% in municipal GDP with public employee payroll and a reduction in spending on capital investments. This effect was also observed in the mayors of
However, to a lesser extent.
Estimates for the Difference-in-Differences model suggest that the expectation of reelection has a positive effect on the primary surplus of municipalities. Specifically, they indicate that the effect is much stronger in municipalities with greater fiscal sustainability.
Lessons in Public Policy
Empirical evidence demonstrates that the expectation of municipal reelection positively influences aspects of fiscal policy, indicating that first-term mayors with reelection expectations have a more sustainable fiscal policy. Therefore, attention is drawn to the potential harmful effects of the end of reelection on subnational fiscal policy.
Reference
MARCINIUK, Fernanda L.; BUGARIN, Maurício S. The influence of reelection on subnational fiscal policies. Brazilian Journal of Economics, v. 73, p. 181-210, 2019.
