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<p>In South Asian economies, election oriented policy-making and its dynamics have remained a crucial area of interest for policy makers. The political climate stimulates governments to outline economic policies through strategic macroeconomic and budgetary decisions in the pre-election period. This study investigates the existence of Political Business Cycles (PBCs) and evaluates the role of fiscal rules, IMF program, and institutional quality in South Asia by considering three largest democracies, India, Pakistan, and Sri Lanka. Panel data for the period 1985–2019 has been employed in the study. Statistical tests and Error Correction Model (ECM) are used to analyze the data. Results show that gross government consumption expenditure is positively associated with GDP, population, inflation, and institutional quality. Fiscal rule indicator has a negative association with government consumption expenditure, suggesting that fiscal rule limits the extent of PBCs in the sampled countries. Moreover, governments increase gross consumption expenditures in the election year as well as one year prior to election, reducing them immediately after the election year to correct the budget deficit. This study suggests that strengthening the autonomy of the fiscal institutions and mandating transparency in the budgeting process at the end of each tenure of the incumbent government can discourage future administrations from engaging in such activities.</p>

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Election economics in South Asia: do fiscal rules and institutional quality constrain political business cycles?

  • 期刊论文

  • 发表日期：

    2026年2月4日

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  • Niaz Ali,
  • Muhammad Tariq,
  • Muhammad Azam Khan

摘要

In South Asian economies, election oriented policy-making and its dynamics have remained a crucial area of interest for policy makers. The political climate stimulates governments to outline economic policies through strategic macroeconomic and budgetary decisions in the pre-election period. This study investigates the existence of Political Business Cycles (PBCs) and evaluates the role of fiscal rules, IMF program, and institutional quality in South Asia by considering three largest democracies, India, Pakistan, and Sri Lanka. Panel data for the period 1985–2019 has been employed in the study. Statistical tests and Error Correction Model (ECM) are used to analyze the data. Results show that gross government consumption expenditure is positively associated with GDP, population, inflation, and institutional quality. Fiscal rule indicator has a negative association with government consumption expenditure, suggesting that fiscal rule limits the extent of PBCs in the sampled countries. Moreover, governments increase gross consumption expenditures in the election year as well as one year prior to election, reducing them immediately after the election year to correct the budget deficit. This study suggests that strengthening the autonomy of the fiscal institutions and mandating transparency in the budgeting process at the end of each tenure of the incumbent government can discourage future administrations from engaging in such activities.