The Fiscal Effect of Political Tenure

We assemble a comprehensive dataset covering a large set of old and new democracies over four decades to document the dynamics of rulers alternating in office. We construct a measure of the tenure accumulated in office by the ruling party (or a coalition of parties) since the establishment of a democracy. Our measure reveals a large variation in the political tenure of rulers alternating in office and uncovers an important fiscal effect of political tenure. A ten percent increase in tenure rises government expenditure, measured as percentage of GDP, of 0.23 percentage points, and deficit of 0.21 percentage points over the period 1972-2014. We outline a conceptual framework that accounts for the uncovered empirical relationship and suggest the relevance of a fading ’honeymoon effect”, which revisits Olson (1984) argument on the dynamic effect of distributional coalitions. The older the ruling group, the more divisive the available policies that can be implemented, which require costly transfers in the form of public expenditure to keep the group together.