Page 8 - 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

                                               Tabel 3 - Results from First GMM methodology
                          Variable         Coefficient        Std. Error        t-Statistic         Prob.
                      UNEMPLOYMENT              0.059249           0.105212          0.563144            0.5749
                          EXELEC                -1.194867          0.702809         -1.700131            0.0930
                         LEGELEC                0.017354           0.575626          0.030148            0.9760
                         INDUSTRY               0.728905           0.061997          11.75708            0.0000

                    R-squared                  0.6192164               Mean dependent var              2.659014
                    Adjusted R-squared         0.6465284               S.D. dependent var              0.133604
                    S.E. of regression          0.365043               Sum squared resid               10.52723
                    Durbin-Watson stat          1.823032                  J-statistic                  8.197470
                    Instrument rank                   7                 Prob(J-statistic)              0.042102

                                               Tabel 4 - Resutls of Second GMM Specification
                          Variable         Coefficient        Std. Error        t-Statistic         Prob.
                      UNEMPLOYMENT              0.336411           0.284594          1.182074            0.2395
                          EXELEC                3.343041           2.890536          1.156547            0.2498
                         LEGELEC                5.290670           2.870891          1.842867            0.0678
                         INDUSTRY               0.019110           0.018235          1.047980            0.2968

                    R-squared                   0.704188               Mean dependent var              2.341877
                    Adjusted R-squared          0.796793               S.D. dependent var              0.188491
                    S.E. of regression          2.122489               Sum squared resid               540.5950
                    Durbin-Watson stat          2.402290                  J-statistic                  4.058148
                    Instrument rank                   5                 Prob(J-statistic)              0.043959

                   executive elections. Third, in one of our models, the   government  expenditures  especially oil and food
                   size of industry to GDP indeed affects tax revenue.   subsidy. Voters observe taxes and government
                   Supporting  previous  literatures,  we  find  political   consumption prior  to voting. There, they argued
                   budget cycles to be also a phenomenon in South East   that  electoral  cycles in certain macroeconomic
                   countries. Results from two of the four regression   policy variables derive from temporary information
                   models show that tax revenue (%GDP) shrinks to   asymmetries. Hence prior to election periods the
                   about one and a half percent during election years;   incumbent has an incentive to try to “signal’ that is
                   whereas, government expenditure (log) is almost   doing well.
                   half  point  larger during executive election years.
                   Thus, the two econometric  methods  that  we run
                   provide  findings  that  incumbent  government  in
                   the sample economies exercise expansionary fiscal
                   policies through either reducing tax collection or
                   increasing government expenditure or both during
                   election years to get more voters.

                      For further studies, we need to disaggregate and
                   look deeply on each policies measurement taken by
                   the government pre and post-election years. Some
                   policies are intended to maintain the economy on
                   the right path such as balance calls for spending
                   and tax-cut policies and some are just for political
                   reasons. For example, Sunset Policy program and
                   personal  &  corporate  tax  income  reduction  in
                   Indonesia during 2008-2009 could be considered
                   as reforms for the whole fiscal adjustment program
                   or  part of the incumbent’  strategies  to entice
                   the voters.  A simple argument supporting the
                   latter view is that voters like low taxes and high
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