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Playing with Fire: Pre-Electoral Fiscal Manipulation and the Risk of a Speculative Attack

Harvard Dataverse (Africa Rice Center, Bioversity International, CCAFS, CIAT, IFPRI, IRRI and WorldFish)

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Title Playing with Fire: Pre-Electoral Fiscal Manipulation and the Risk of a Speculative Attack
 
Identifier https://doi.org/10.7910/DVN/3AAU1Y
 
Creator Nyblade, Benjamin
O'Mahony, Angela
 
Publisher Harvard Dataverse
 
Description Conventional wisdom holds that voters in developing countries fail to punish pervasive pre-electoral fiscal manipulation. However, we argue that governments are unlikely to engage in pre-electoral fiscal manipulation when facing a high risk of speculative currency attacks. In particular, under fixed exchange rates, governments are less likely to engage in fiscal electioneering when either their real exchange rate is highly appreciated or their foreign exchange reserves are low. In contrast, under a flexible exchange rate, neither a country's real exchange rate nor its reserves affects governments' decision to engage in fiscal manipulation. Our argument receives support through a quantitative analysis of government budget balances in 97 developing countries from 1975 to 2005.
 
Subject Social Sciences