Electoral Cycles: Do they really fit the Data?

This paper provides a theoretical model of pre-electoral budget cycle and tests its empirical implications. When elections approach, incumbent policy-makers have an incentive to signal their competency by acting on economic variables. Rational voters incorporate the knowledge of such mechanisms in their decisions, evaluating governments on the basis of unexpected policy. Available data confirms the hypothesis that economies are manipulated during election years, but voters do not seem to behave as predicted. Alteration of fiscal variables may be due to an attempt on the incumbent's part at influencing economic growth performance as opposed to an experiment in direct signalling .