Are there Election-Driven Tax-and-Expenditure Cycles for Urban Governments?

Abstract

Do tax-and-expenditure cycles exist at the city level? Local politicians cannot manipulate the economy to improve their own or their party's electoral prospects and thereby produce apolitical business cycle. However, they can manipulate tax revenues and expenditures over the election cycle, with some constraints. Using data from medium-and large-sized U.S. cities from 1978 through 1985, the authors found evidence that tax-revenue cycles exist in many cities with mayor-council governments, where politicians prefer to cut taxes or avoid tax increases in fiscal years when an election is imminent. There was little evidence, however, of operating expenditure cycles.