Electoral Competitiveness, Political Budget Cycles and Taxation in Developing Countries

Abstract

Despite significant evidence of ‘political budget cycles’ affecting public expenditure, studies of the impact of elections on tax collection have reached mixed conclusions. Drawing on significantly improved government revenue data, this paper finds, contrary to earlier research, that when we focus on all executive elections in developing countries there is no significant effect on levels of tax collection. Instead, the impact of elections on tax collection is conditional on elections being competitive, with competitive elections resulting in a negative impact on pre-election tax collection, split relatively evenly between direct and indirect taxes. The magnitude of the effect is large, reaching as much as 0.5 per cent of GDP in some specifications, and has important implications for understanding the incentive effects of elections and the connections between elections and effective governance.