Political Business Cycle in Taiwan—Evidence from Central Government Expenditures

The political business cycle (PBC) refers to the phenomenon of an incumbent utilizing fiscal or monetary policies to create an economic boom before an election so that periodic fluctuations are induced according to election calendars. This article uses panel data from 1992 to 2010 to examine the effect of presidential elections on central government departmental expenditure in Taiwan. The results suggest an opportunistic PBC in Taiwan after the first Taiwanese presidential direct election in 1996. Furthermore, Taiwan’s government expenditure cycles have been significantly stronger in the years of the “new democracy.”