A political budget cycle is a periodic fluctua-tion in a government’s fiscal policies, which is induced by the cyclicality of elections. In this paper, we will review some recent develop-ments in the theory and evidence of these cycles, with an emphasis on the international comparison of these phenomena. We can highlight three areas in which significant progress has been made in recent years. First, new theoretical explanations (models) have been proposed where political budget cycles arise as the result of a moral hazard problem between the government and the electorate. Second, more sophisticated empirical methods, in particular, time series methods appropriate for dynamic panel data regressions, have been adopted in cross-country analyses. Last but not least, the focus of recent studies has shifted from industria-lized countries to all (including developing) countries, and from the existence of political budget cycles to the magnitude and com-position (revenue vs. spending) of these cycles.
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