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The Political Budget Cycle of Municipalities in The Czech Republic
Název práce v češtině: Politicko-rozpočtový cyklus obcí v České republice
Název v anglickém jazyce: The Political Budget Cycle of Municipalities in The Czech Republic
Klíčová slova: politicko-rozpočtový cyklus, obecní rozpočet, samospráva, obce, volby
Klíčová slova anglicky: political budget cycle, municipal budget, self-government, municipalities, elections
Akademický rok vypsání: 2021/2022
Typ práce: diplomová práce
Jazyk práce: angličtina
Ústav: Institut ekonomických studií (23-IES)
Vedoucí / školitel: Mgr. Roman Kalabiška
Řešitel: skrytý - zadáno vedoucím/školitelem
Datum přihlášení: 29.06.2022
Datum zadání: 30.06.2022
Datum a čas obhajoby: 31.01.2024 09:00
Místo konání obhajoby: O206, místnost. č. 206
Datum odevzdání elektronické podoby:01.01.2024
Datum proběhlé obhajoby: 31.01.2024
Oponenti: PhDr. Miroslav Palanský, Ph.D.
Seznam odborné literatury
BENDŽÍKOVÁ, I. (2018): Politicko-rozpočtový cyklus krajských výdajů. Diplomová práce. Univerzita Karlova, Fakulta sociálních věd, Institut ekonomických studií. Vedoucí práce Šťastná, Lenka.

BRENDER, A., DRAZEN, A. (2005): Political budget cycles in new versus established democracies. Journal of monetary economics [online]. Amsterdam: Elsevier B.V, 52(7), 1271-1295. ISSN 0304-3932. doi:10.1016/j.jmoneco.2005.04.004

CASTRO, V., MARTINS, R. (2019): Budgets, expenditure composition and political manipulation. International review of applied economics [online]. Routledge, 2019, 33(2), 172-187. ISSN 0269-2171. doi:10.1080/02692171.2017.1379474

HEMMINGS, P. (2006), "Improving Public-spending Efficiency in Czech Regions and Municipalities", OECD Economics Department Working Papers, No. 499, OECD Publishing.

NORDHAUS, W. D., (1975): The Political Business Cycle. Review of Economic Studies XLII2: 169–190.

PHILIPS, A. Q. (2016): Seeing the forest through the trees: a meta-analysis of political budget cycles. Public choice [online]. New York: Springer US, 168(3-4), 313-341. ISSN 0048-5829. doi:10.1007/s11127-016-0364-1

REPETTO, L. (2018): Political Budget Cycles with Informed Voters: Evidence from Italy. The Economic journal (London) [online]. Oxford: Wiley Subscription Services, 128(616), 3320-3353. ISSN 0013-0133. doi:10.1111/ecoj.12570

ROGOFF, K. (1990): Equilibrium Political Budget Cycles. The American economic review [online]. Menasha, Wis: American Economic Association, 80(1), 21-36. ISSN 0002-8282.

SEDMIHRADSKÁ, L., HAAS, J., KUBIK, R. (2011): Political business cycle in Czech municipalities. Prague Economic Papers.

WOOLDRIDGE, J. M. (2010): Econometric analysis of cross section and panel data. MIT press.
Předběžná náplň práce v anglickém jazyce

Many voters during electoral decision making try to analyze the former behavior of politicians, since they assume the consistency of their previous behavior with their future performance. The final election decision may be largely based on the behavior of the potential candidate in the period shortly before the election. Politicians seeking re-election are aware of increased attention of citizens in the election year and they tend to direct governments’ expenditures toward projects with high immediate visibility. Rogoff (1990) explains that budget cycles arise even with rational, utility-maximizing voters, who do not suffer from myopia, because politicians enjoy an informational advantage over their citizens. Understanding how politicians manipulate public spending for electoral purposes is important to design policies that ensure accountability and limit opportunism (Repetto, 2018).

The aim of this master’s thesis is to determine whether elections induce changes in the size and the structure of municipal budget expenditures. We will also study the impact of political affiliation of the mayor on the political budget cycle. Castro & Martins (2019) found out that right-wing governments are more prone to reduce expenditures and deficits after the elections than left-wing ones.


Hypothesis #1: The political budget cycle is present at the municipal level in the Czech Republic.
Hypothesis #2: The political budget cycle at the municipal level does not differ depending on the political party in power.


In this master’s thesis the political cycle on local government expenditures will be examined. We will use expenditure microdata available from specialized information portal of Ministry of Finance – Treasury monitor. Using microdata, it will be possible to identify specific expenditure categories that are preferred in the pre-election period by government representative. We will create panel dataset consisting of detail expenditure composition of all 6 254 municipalities in the Czech Republic. Monthly data from 2010 to 2022 will be used, which covers three election periods. Additional data about municipalities such as population structure are available from Czech Statistical Office.

The collected panel data will be subjected to econometric analysis. Local governments’ expenditures as dependent variables will be explained by demographic and macroeconomic characteristics of municipalities. Also, an indicator variable representing election and pre-election period will be included. In the next part of the analysis political affiliation of the mayor will be added to our models as explanatory variable.

Ordinary Least Squares method as well as Fixed Effects model will be used. Fixed Effects models are used to deal with a time-constant unobserved effect and enable us to relax the assumption that the error term in each time period is uncorrelated with the explanatory variables in the same time period. Due to the nature of our data, we can expect time-constant unobserved effect in the form of geographical location of the municipality, distance and dependence on surrounding municipalities, orientation to individual types of economic activity etc.


Government spending is a widely discussed topic not only in academia but also in the public. This thesis aims to explore political budget cycle of municipalities in the Czech Republic and contribute to the general debate about political cycle. It will help to determine if there is an inefficient budget management present at the municipal level and understand how politicians manipulate public spending for electoral purposes. Moreover, it will explore if any specific political parties tend to manipulate the expenditures more than others and distinguish ideological and opportunistic behavior of political parties. This study will include all municipalities in the Czech Republic which will provide us unprecedentedly large sample which has not yet been analyzed in this context. The main contribution of the thesis lies in processing and analyzing of expenditure microdata.


1. Introduction
2. Motivation and hypotheses
3. Literature review of political budget cycle
4. Municipalities, budgets and expenditures
5. Data
6. Methodology
7. Results
8. Conclusion
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