Do electoral cycles affect local financial health?

The main purpose of this study is to determine whether the proximity to elections impacts on the financial health of local governments. This constitutes an original approach to understand the importance of monitoring politicians' actions, especially when elections are coming. Using a sample of 153 Spanish local governments for the period 1988–2008, we find the existence of an electoral cycle, since electoral proximity damages the financial health of local governments. Concretely, the use of public resources with the opportunistic aim of being re-elected damages the local solvency, the capacity to provide public services, and the capacity of preserving social welfare, since municipalities becoming more dependent on resources from other levels of government. Furthermore, we find a partisan cycle too, since municipalities governed by left-wing parties are usually under worse financial health than other municipalities because they lose capacity to adapt to economic and financial changes.