Political Budget cycles and Civil Service in American State Governments
Wednesday, 18 February, 2015

On February 16th, ISET hosted David Bostashvili PhD. from the University of Houston. Dr. Bostashvili presented his job market paper: “Political Budget cycles and Civil Service in American State Governments”. The motivation for this paper was an observation that all levels of government tend to spend budgets right before elections. This phenomenon is known as the “political budget cycle”. Furthermore, evidence of the budget cycles is mostly studied in developing countries. There is a lack of study of this phenomenon in current literature from developed countries. Dr. Bostashvili used the establishment of civil service systems in the United States to study how it affects budget cycles.

The institutional background of the civil service system should have: (i) merit-based recruitment and promotion, (ii) to ensure the security of tenure, and (iii) political neutrality.

The study uses U.S. data from 45 states on budget spending, elections, and other variables from 1960 to 1996. After 1996, the civil service system was established in all levels of state government. The researcher used the specification of the Difference-in-Difference approach to finding evidence of changing budget cycles in treatment and control groups over the years. The study’s main finding is that cycles change based on the bureaucratic organization of the state. More precisely, states with a civil service system do not experience cycles in spending. Furthermore, there are much larger cycles in “politically seduced” expenditures and there are no cycles in “politically insignificant” spending.