Municipal budget cycle in Italy: Evidence of mayors’ opportunistic behavior

Maurizio Lisciandra (Università di Roma LUMSA)
Emanuele Bracco (University of Verona)
Marco Alberto De Benedetto (University of Calabria)

Abstract

We test the political budget cycle hypothesis using revenue data from Italian municipal administrations. Exploiting the staggered schedule of local elections and implementing a difference-in-differences strategy, we find that mayors behave opportunistically. In pre-election years, they decrease total accrued revenues from waste disposal tariffs and property taxes, which are primary sources of revenue in a municipal financial statement. Non-term-limited mayors who choose to run for re-election behave opportunistically, whereas mayors who face a binding term limit do not manipulate revenues for electoral purposes. These findings are robust to a set of different specifications and controls. Heterogeneity analysis reveals that our results are mainly driven by smaller municipalities, municipalities that are endowed with lower levels of social capital or are located in the South of the country.