In this paper we test the impact of elections on fiscal policy in Latin American economies
in comparison to OECD countries over the period 1990-2006. We find that in Latin American
countries, the average primary balance declines by an amount close to 0.7 per cent of GDP
during an election year, confirming the hypothesis of fiscal deteriorations during the election
cycle. Most of this movement is due to the expenditure component and within this it is current
(close to 0.8 per cent of GDP) rather than capital expenditure that is most affected. By contrast, in
OECD countries, the observed changes in the primary balance and current expenditures during
election years are minimal. Our analysis also suggests that re-elections of incumbent candidates
in Latin America have a considerable impact on the expenditure side of the fiscal balance.
Finally, by comparing the 2005-2006 electoral cycle with respect to prior electoral cycles, we note
a slight improvement of fiscal management around elections in the region. We derive policy
implications and recommendations from our findings.
