Government expenditure, political cycle and rent-seeking

Decentralization and direct election have prospective to improve and expand the prosperity of the society and also enhance accountability of the government. On the other hand, competition in the election might create incentive for incumbent to abuse their power to misallocate of the regional budget. This study aims to examine the pattern of regional budget around the election years. Using Indonesian municipals in democratized period as a sample, we find that in the budget allocation for social expenditure and grant expenditure are more likely to increase two years prior to the election year. These increase become higher close to election year. If the incumbent running for re-election, these expenditures are more likely to increase. We find a weak evidence of political budget cycle among the incumbent during the election year