Electoral cycles in Philippine fiscal and monetary policy

Abstract

Filipino politicians are frequently characterized as being driven by office-seeking motives. Despite this, surprisingly little systematic evidence is available to support the electoral-cycle hypothesis in the Philippines. This paper tests the real-world relevance of the longstanding belief in election economics by using intervention analysis or interrupted time-series analysis, a version of the classical multiple regression model, to determine the impact of elections on economic policies and economic outcomes. Time-series regressions confirm the presence of political business cycles in measures of fiscal policy such as total government expenditures and public construction spending. However, monetary authorities show no inclination to engage in pre-electoral expansion on their own. They respond to higher money demand near election periods by adjusting the domestic and foreign components of the monetary base to stabilize the growth of monetary aggregates. The net effect of fiscal policy manipulations on measures of aggregate economic activity is found to be negligible.

JEL classification: O23, P16, C22