September 2, 2015
This paper tests for political budget cycles among U.S. municipalities. According to the political budget cycle hypothesis, in election years government officials engage in opportunistic fiscal policy manipulation for electoral gains. We test that hypothesis using data on taxes, spending, and employment for a panel of 268 U.S. cities over the period 1970–2004. While our estimates provide no evidence of altered total expenditures or taxes in election years, we do find a 0.7 % increase in total municipal employment, including increases in police, education, and sanitation employment.