Abstract
Empirical evidence offered in this study suggests that decisions by state government officials to effect debt-financed spending depend in part on the state's gubernatorial election cycle. More specifically, the results reveal relative increases in state debt issues in anticipation of elections, and furthermore, they reveal that such increases are more significant for states characterized by high interparty political competition. While theoretical limitations preclude a definitive explanation for these results, the evidence is consistent with a view of state political markets where incumbent parties manipulate public policy so as to enhance the probability of success in pending elections. This insight is significant in that it suggests a relationship between public policy decisions and election cycles in a context heretofore unexplored.
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The authors thank John Evans, Nicholas Gonedes, John Hughes, Robert Ingram, William Keech, Wesley Magat, James Patton, Katherine Schipper, and George Stigler for their helpful comments. Prior versions of this manuscript were presented at the School of Business Administration, the University of California-Berkeley, at the School of Urban and Public Affairs, Carnegie-Mellon University and at the Wharton School, the University of Pennsylvania. Funding for this study was provided by the Columbia University Graduate School of Business.
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Baber, W.R., Sen, P.K. The political process and the use of debt financing by state governments. Public Choice 48, 201–215 (1986). https://doi.org/10.1007/BF00051618
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DOI: https://doi.org/10.1007/BF00051618