ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Political Budget Cycles in India

Political Budget Cycles in India Kunal Sen Rajendra R Vaidya Political Business Cycle Theories argue that opportunistic incumbent political parties attempt to manipulate policy instruments prior to elections in order to increase the probability of being re-elected. In this paper the authors test the empirical implications of these theories for the Indian economy. They find a distinct increase in both the budget deficit and in its monetisation in the years leading to an election. No evidence is found of an electoral cycle in output. While the aggregate price behaviour is found to be unaffected by elections, there is some evidence of a pre-election increase in the price of manufactured products.

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