Political factors have been put forward as explanations for business cycles since the 1970’s. Opportunistic and partisan political parties have been introduced in political business cycle models and the behavior of both types of parties was shown to induce business cycles. Most of those models look at the expenditure or revenue side of government budgets as a whole. We consider the decomposition of government budgets into their main fiscal categories and explore whether partisan differences are important in explaining the different levels (as shares of GDP) of those fiscal categories across countries. Our database comprises most OECD countries ranging from 1970 to 1999. We show that left-wing governments tend to expend more money in all categories but total consumption, non-wage consumption and investment, whereas in the revenue side, left-wing governments tend to collect bigger total amounts with positive and strongly significant effects on social security and other taxes. These results are robust to the use of different ideology indicators.
Available at: http://works.bepress.com/josetavares/23/