The Political Budget Cycle: Evidence from Indian Municipal Corporation Elections

The political budget cycle (PBC) theory deals with increased spending or decreased revenue collection, or a combination of both, on the verge of an election by the incumbent government to retain office. Empirical verification of the PBC theory at the subnational local government level is scarce in the literature. Subnational local governments are more prominent in population and budget for a country like India. This study takes into account 34 municipal corporations in India to examine the PBC theory and find strong evidence of politically motivated cycles on the budget expenditure and revenue front. Notably, the more visible expenditure on welfare schemes shows increased spending during an election period. On the revenue side, this study also finds evidence in support of the PBC theory. Indian municipal corporations are creating ‘welfare’ and ‘infrastructure’ cycles during the election period to gain political profit and are validating the ‘visibility’ and ‘targetability’ hypotheses described in the literature. This study is the first attempt to trace the presence of the PBC at the subnational local government level in India.