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La Chaire EPPP » November 9, 2016 Luigi Moretti University Paris 1 Panthéon Sorbonne

Luciano Greco and Luigi Moretti

(University of Padova and CES – Université Paris 1 Panthéon Sorbonne)

“Fat Leftovers: Political Budget Cycle and Payments on Arrears”

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Date
Wednesday, November 9th, 2016

6:30 p.m. to 8 p.m.

Location
IAE de Paris – BioPark 12, rue Jean Antoine de Baïf 75013 Paris

Room D5 

Speaker 
Luigi Moretti (Université Paris 1 Panthéon Sorbonne)

Paper 
“Fat Leftovers: Political Budget Cycle and Payments on Arrears”

Authors
Luciano Greco (University of Padova)

Luigi Moretti (Université Paris 1 Panthéon Sorbonne)

Abstract: In this paper, we investigate how payments on public investment arrears are influenced by the political cycle. We first develop a model where local politicians face term limits and take public finance decisions. Each year, incumbent politicians set the level of commitments for current and investment expenditures, taxes and loans; then, they decide the level of payments on committed expenditure (including arrears). Testable predictions suggest a political budget cycle where taxes, commitment (investment) expenditure, and payments are used strategically by incumbent politicians. We test such predictions using a dataset of Italian municipalities for the period 2000-2010. Our empirical findings confirm that politicians tend to implement fiscal consolidation (i.e., increase of taxes and reduction of loans, commitment expenditure and payments) early after taking office; along the political cycle, commitment investment expenditure and taxes grow until the pre-electoral year, then dramatically shrink in the election year. We show that incumbent politicians regulate the timing of expenditure implementation by steadily increasing payments (on arrears) along the political cycle, reaching the maximum in the election year.

Short bio: Luigi Moretti is Maitre de Conference at the Centre d’Economie de la Sorbonne – Université Paris 1 Panthéon-Sorbonne. He previously worked as Research Fellow at the Universities of Padova and Bologna. He holds a PhD in Economics from the IMT Advanced Studies Lucca and a Laurea (summa cum laude) in Political Science from the University of Florence. His research interests focus on the empirical analysis of policy-relevant topics within the field of the institutional economics. His publications as well as more details about his CV and research activity are available at:https://sites.google.com/site/morettilg/

 

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