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Chiung-ju Huang, Associate Professor, Department of Public Finance, Feng Chia University.
Yuan-hong Ho, Professor, Department of Public Finance, Feng Chia University.
Tzu-yin Lin, MA, Department of Public Finance, Feng Chia University.
Elections, Checks and Balances and the Allocation of Public Expenditure: An Empirical Analysis of Local Government in Taiwan (in Chinese) Download
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Previous empirical work on political budget cycles focused solely on the dynamics of overall budget, and implicitly assumes the executive has full discretion over fiscal policy. This study goes beyond traditional political budget cycles models and shed light on the case study of 21 local governments in Taiwan over the 1984-2009 periods.

To explore how the level of checks and balances can explain the size of the political budget cycles, the political constraints index for the 21 local governments in Taiwan province is developed following the coding procedure of Henisz(2005). The law and order index from the International Country Risk Guide are used to measure compliance with the law. The proxy for effective checks and balances on executive discretionary power over the 1984 to 2009 period are established with the combination of the political constraints index and the law and order index. The impacts of elections, checks and balances on the allocation of local public expenditures over the period of 1984 to 2009 are then explored by using the generalized method of moments developed for dynamic models of the panel data of Taiwan's 21 local governments.

The empirical results show that the government would indeed adjust the budget expenditures contents to achieve their goals in the election period. Such as, the deletion of the general government budget expenditures towards the social welfare expenditure budget. By incorporating effective legislative checks and balances into the model, the effect of political budget cycles can indeed be moderated or counteracted. Regardless of whether the local government has discretion or not, it does not affect the checks and balances ability of the legislature.