Political Cycles and Fiscal Management in Brazilian Municipalities

The study analyzed how political-electoral incentives influence thefiscal management of Brazilian municipalities and their effects onelectoral results. Two findings stand out, the first is that although thereis an increase in investments, visible to the population and associatedin the literature with favorable electoral results, the re-elected partiesalso have a more sustainable personnel structure and better liquidityconditions in the short-term with leveraged performance in strategicperiods, such as in electoral years. The second is that despite the factthat the newly elected parties sign higher levels of fiscal conditionin the three political cycles, in the post-election period the averagesshrink to levels lower than those achieved by management at thebeginning of the first-term. Therefore, despite indicating better fiscalconditions in electoral years, the effect of signaling is reversed in thefollowing year. As the impact of management decisions will not beavailable to the electorate immediately during the election period,politicians can use fiscal strategies to avoid fiscal balance beingimpaired in strategic periods and postpone disbursement for thepost-election year, a decision that would not hurt the current fiscalmanagement and the receipt of votes.