Electoral incentives and (not so) strict fiscal rules: new evidence for Brazilian municipalities from unpaid spending obligation

Abstract

In the Brazilian public sector accounting, unpaid spending obligation is a budget item com¬monly used as an instrument for the budget execution by the different levels of government. By means of this budget line, it is possible to postpone the payment of current committed expenditures for subsequent fiscal years. Nevertheless, it can be used opportunistically by incumbent governments according to the electoral incentives they face, namely, whether they are in their first term (eligible for re-election) or in their second term (not eligible). This paper aims to investigate the influence of term limitation on the amount of unpaid spending obliga¬tion at the local level in Brazil. Our results suggest significant differences between these two groups of mayors, as first-term mayors register higher unpaid spending obligation amounts in comparison to second-term mayors. Moreover, following Brazilian fiscal rules, both types of mayors reduce it in election years. However, this reduction is more incisive when mayors are in their first term but do not try to be reelected relatively to mayors in their first term who try.