Political Cycles and Fiscal Management in Brazilian Municipalities

Abstract

The study analyzed how political-electoral incentives influence the fiscal management of Brazilian municipalities and their effects on electoral results. Two findings stand out, the first is that although there is an increase in investments, visible to the population and associated in the literature with favorable electoral results, the re-elected parties also have a more sustainable personnel structure and better liquidity conditions in the short-term with leveraged performance in strategic periods, such as in electoral years. The second is that despite the fact that the newly elected parties sign higher levels of fiscal condition in the three political cycles, in the post-election period the averages shrink to levels lower than those achieved by management at the beginning of the first-term. Therefore, despite indicating better fiscal conditions in electoral years, the effect of signaling is reversed in the following year. As the impact of management decisions will not be available to the electorate immediately during the election period, politicians can use fiscal strategies to avoid fiscal balance being impaired in strategic periods and postpone disbursement for the post-election year, a decision that would not hurt the current fiscal management and the receipt of votes.

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