Essays on the Political Economy of Subnational Public Finances

Citation

Rosado Buenfil, Welmar Eduardo (2017) Essays on the Political Economy of Subnational Public Finances. Dissertation (Ph.D.), California Institute of Technology. doi:10.7907/Z94X55VX. https://resolver.caltech.edu/CaltechTHESIS:06082017-184725474

Abstract

This dissertation is comprised of three essays addressing the connections between democracy and public finance at the subnational level. Chapter 2 focuses on variation within public expenditure, revenue, and debt at the state level in the United States for the period 1977-2011 seeking to uncover whether there is evidence of efforts by incumbents to manipulate state public finances to influence election outcomes. I find that total public expenditure increased the year before elections, especially during the period 1977-1994, but it is mostly driven by intergovernmental expenditure. Meanwhile, for later years there is a sizable reduction in tax revenue during electoral years, which results a debt increase. In Chapter 3, I extend the literature of political budget cycles at the subnational level to include pension funding. I explore the relationship between state pension funding and gubernatorial elections in the United States for the years 2001-2014. I show that one is more likely to observe the government and other employers undercontributing to pension funds during the pre-electoral year. I also found fluctuations in the pension fund's portfolio composition depending on how close a gubernatorial election is. Finally, in Chapter 4, I investigate whether the credit rating agencies (Fitch, Moody's, and Standard and Poor's) adjust the timing of their ratings as a function of the electoral calendar. I collect a novel database using credit ratings of Mexican states, and estimate panel models for gubernatorial elections in Mexico for 2005-2015. My results indicate that credit rating agencies delay announcing rating downgrades until after elections, especially when elections are very competitive.

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