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Fiscal Manipulation in non-Democratic Regimes - The case of Egypt

Shedding light on the political budget cycles in Egypt seems very timely as the country is undergoing a prolonged process of democratic transition.
Political budget cycles (PBC) refer to cycles during which some components of the government budget are influenced by the electoral cycle, thus inducing an increase in government spending or a decrease in taxes in an election year, leading to a larger fiscal deficit. The pre-electoral fiscal manipulation is a tool that governments possess to increase their chances for reelection.

This paper is organized as follows:
- The first section is dedicated to the review of the rich literature on political budget cycles in both non-democratic regimes and in new democracies.
- In the next section, we analyse the case of Egypt, a country with a long history of elections under an autocratic regime and that is, at the same time, suffering from persistently bad public finances reflected in high and increasing budget deficits and high levels of public debt. It focuses on the resources and expenditures as measured in the government’s accounts, in an attempt to see if there are uncovered relationships between budget resources and allocation on one hand, and the electoral cycle on the other hand.
- To verify this relationship, we undertake an econometric analysis to test if the State budget is being manipulated ahead of elections for political motivations.
- Finally, section 4 discusses the institutional arrangements that are likely to shape the way of financing politics in Egypt. We focus on two institutional aspects that are needed to avoid fiscal manipulation for political reasons, namely the budget elaboration process and the rules controlling the use of private funds in elections campaigns.

The objective is to see the extent to which institutional arrangements are (or are not) conducive to good governance of public finances. It also presents policy recommendations to strengthen the independence of fiscal policy from short-term incentives of politicians.