The relationship between fiscal deficit and democratic elections; a case study of Tanzania

The purpose of the study is to examine relationship between fiscal deficit and democratic elections in Tanzania. This study is impacted by the fact that the country has experienced extreme deficit levels since inception of democracy, furthermore there has been a perception among individuals experiencing in money supply during pre-election and election period compared to post election period which is also supported by the study done by Therkildsen, Khisa and Msami (2022) reflecting overspending by incumbents to influence votes. The main questions to be answered are. Does political budget cycle exist in Tanzania? What is the effect of re-election by incumbent in relation to political budget cycle? The study made use of a variety of data bases, including international data sources from the IMF data mapper and local data using information gathered from various government agencies across the country. However, because the local data set contained structural breaks for variables like fiscal deficit and gross domestic product, therefore international data sources were examined due to consistency. The key findings suggest presence of political budget cycle in Tanzania; however, it had a minimal impact due to low level of expenditure as a result of resource constraints to raise funds. This was supported by both the pre-election and election year scenarios. Although, this was not the case for incumbents running for reelection, where the electoral year variable indicated that incumbents were fiscal conservatives while the pre-election year variable indicated that there was no relationship between incumbent running for re-election and the political budget cycle. In summary, the results suggest the presence of a political budget cycle, although its impact is relatively minor ranging from 0.5 to 1.7 percent, making policy implications unlikely. However, given the country's sustained economic growth, this will offer a dilemma because the political budget cycle will become more salient. Therefore, in order to limit the political budget cycle impact, future tracking of expenditure by evaluating the structure of spending pattern would be necessary.