Page 7 - Working Paper (Analysis of Political Budget Cycles in Emerging South East Asian Economies)
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DDTC Working Paper 0414  DDTC Working Paper 0414

                   model that we built is consistent to all BLUE (best   Table 2 - . Econometric 2SLS Results using Log
                                                                       Government Expenditure as Dependent Variable
                   linear unbiased estimators) assumptions. However,
                   due to the succinctness of this paper, we did not                        Standard
                   include  all  relevant  tests such as  collinearity,   Variable  Coefficient   Errors  Z  P>[Z]
                   heteroscedasticity, and autocorrelation test. Moving
                                                                     Unemployment  -0.006    0.02   -0.03  0.974
                   to regression results, coefficient unemployment is
                                                                     Executive Elec  0.34*    0.2    1.69  0.092
                   statistically  significant  at  90%  probability  level.
                   The sign of coefficient unemployment is negative   Legislative Elec  -0.04  0.1   -0.4  0.68
                   meaning that  for  one  percentage increase  in   Industry VA  0.049***  0.0069   7.12  0.0
                   unemployment would decrease tax revenue ratio     Cons         21.28***   0.302  70.36  0.0
                   by 0.14%.
                                                                     Number of Obs             124
                      Meanwhile,  tax  revenue  ratio  is  lower  by   R-Squared               0.31
                   1.45%  during  executive  election  compare  to  any   Instrumented variable: unemployemnt over total labor force. Instruments:
                   other period. This coefficient is also significant at   log GDP, unemployment [-1], and log household consumption.
                   90%  probability  level.   We believe, considering
                   previous studies and econometrics approach, that
                                                                       We  now  move  to  use  General  Method  of
                   unemployment variable is affected by other factors
                                                                    Moments  specification  to  find  the  relationship
                   such  real  GDP,  previous  year  unemployment,
                                                                    between elections and fiscal policy chosen by the
                   and government  expenditure. Based on the
                                                                    government. We choose  the same variables  as
                   econometric results in Table 1 below, keeping all
                                                                    appears on the last  two models. The  alternative
                   other variables held constant, there is a tendency
                                                                    model specifications seem to work by incorporating
                   of loosening fiscal policy during election year.
                                                                    similar variables especially binary variable
                                                                    executive election and industry value added to GDP
                   Table 1 - Econometric 2SLS Results using Tax Revenue   for  the  first  GMM  and  legislative  election  binary
                            (%GDP) as Dependent Variable            variable for the second model.
                       Variable  Coefficient        Z    P>[Z]         Binary variable executive election is significant
                                                                    at the ten percent level of significance for the same
                    Unemployment  -0.14*    0.84   -1.70  0.089     period of time. It interprets that during executive
                    Executive Elec  -1.45*  0.814  -1.70  0.089     election year, on average,  the tax  ratio  decreases
                    Legislative Elec  0.56  0.55   1.11  0.267      by  1.19  percent.  On  the  other  hand,  an  increase
                    Industry VA   0.024    0.028   0.86  0.38       of variable industry (as a share of GDP) leads, on
                                                                    average, 0.73 percent of tax ratio.
                    Cons         14.19***   1.27   11.16  0.0
                    Number of Obs             88                       Instead of  binary variable executive election,
                    R-Squared                 0.3                   legislative  election  is  now  significant  at  the  ten
                                                                    percent level of significance for the same period of
                   Instrumented variable: Unemployment over total labor force. Instruments:
                   log GDP, unemployment [-1], and log household consumption.  time. It interprets that during legislative election
                                                                    year, on average, government expenditure expands
                                                                    by  around  5.3  percent.  Other  variables,  however,
                      Using different fiscal policy, log_government
                                                                    are not significant; although, we get all the signs in
                   expenditure, to understand the behavior  of
                                                                    accordance to theoretical assumption.
                   political  budget  cycle during election year, we
                   found evidence that  binary  variable  executive   6. Conclusion
                   election  and  industry  value  added  to  GDP  are
                   significant  at  90  and  99%  probability  levels.
                   Different  sign  with  the  previous  model,  binary   This paper contributes to the political budget
                   variable  executive election has positive and    cycles literature in several aspects. First, it focuses
                   significant  coefficient.  It  means  that  during   on  emerging  South  East  Asian  countries  namely
                   election year  government  expenditure  increase   Indonesia,  Singapore,  Malaysia,  Thailand  and
                   by  0.34%,  holding  other  variables  constant.   Philippines.  These  five  countries  are  considered
                   The two tests that we run provide evidence that   above other South East Asian countries in terms of
                   incumbent government in five South East Asian    their macro-economic performance (e.g. real GDP).
                   countries  exercise  expansionary  fiscal  policy   Second,  we  attempt  to  identify  the  causal  effects
                   through increasing government expenditure or     from  the  incidence  of  elections  to  fiscal  policy
                   both during election years to get more voters.   by distinguishing between parliamentary and
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