Short executive tenures create challenges for long-term fiscal policy, but the impact of term certainty has been hard to measure due to endogeneity issues.
The Problem
- How do short political careers affect long-term fiscal decisions?
- This paper examines how policymakers discount future costs differently based on their expected tenure.
- We address endogeneity problems common in studies of fiscal behavior and term limits.
Our Findings
- Globally, 79 countries over 32 years (1980-2012) show clear patterns.
- When governments know they won't be in office again with certainty, deficits increase significantly under linear discounting models.
- In election periods where re-election is uncertain, quadratic discounting reveals the least responsible fiscal outcomes.
This research provides empirical evidence about how policymakers' time horizons change based on their perceived future in office.
