Pressures to Increase Public Expenditure and Patterns of Procyclical Expenditure

This paper draws on the literature that explains why governments spend procyclically, to predict the pattern of cyclical expenditure across government budgets. Procyclical expenditure increases at a faster rate than income in economic upturns and falls at a faster rate in recessions. The more politicians indulge pressures to increase expenditure in an economic upturn, the more they find it difficult to sustain expenditure in a recession. In this paper, differences in politicians' willingness to increase expenditure in an economic upturn are relevant when predicting patterns of cyclical expenditure across budgets. Predictions are tested with reference to expenditures from government budgets in 23 OECD countries (over the period 1995-2006). Central government capital expenditure and sub-central government expenditure are systematically more procyclical than expenditures from other budgets.