Hoda Youssef , Economic Research Forum (ERF) , 2012

This paper’s main objective is to examine whether fiscal policy in the pre-revolution Egypt has been systematically affected by the political budget cycle (PBC). According to the PBC theory, we should not find evidence of electoral manipulation of the economy, since politicians in non-democratic regimes do enjoy a wide range of tools that can be used to bias an election in their favor. We verify this hypothesis. Our analysis suggests that public revenues, rather than expenditures, are the ones that suffer from a political cycle. More particularly, we find that tax revenues are negatively affected ahead of election years, suggesting that incumbent governments may be resorting to tax cuts in exchange of political finance. The paper also sheds some light on political finance rules in Egypt, an institutional aspect that is necessary to avoid fiscal manipulation for political reasons.

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