Strategic Tax Cuts: How Central and Local Governments Respond to Political Incentives

Strategic Tax Cuts: How Central and Local Governments Respond to Political Incentives | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Strategic Tax Cuts: How Central and Local Governments Respond to Political Incentives Sounman Hong, Suho Ji This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6244409/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study examines how political opportunism in local governments varies based on fiscal decision-making authority—whether controlled by the central government or left to local discretion. We propose two theoretical mechanisms—the political business cycle hypothesis and the electoral competition hypothesis—and test them in the context of government tax cuts. Using South Korea’s institutional setting, where both central and local governments can implement tax cuts, we analyze how political opportunism differs across governance levels. Our findings show strong support for the political business cycle hypothesis when the central government determines tax cuts, with tax reductions increasing as elections approach. However, electoral competition does not influence central government tax policy, likely due to uniform national policies. In contrast, local governments exhibit heterogeneity—political opportunism is more pronounced in electorally competitive districts. These results suggest that local fiscal autonomy can either constrain or amplify political opportunism, depending on electoral incentives. Figures Figure 1 Figure 2 INTRODUCTION In his influential work, Tocqueville observed that local government was beneficial by examining cases from the early United States. He argued that decentralized governance in townships enabled individuals to take an active role in public affairs, thereby strengthening democratic institutions and fostering a sense of political responsibility. Interestingly, however, one of the early founders of the U.S., Hamilton, made a different argument. In contrast to Tocqueville’s emphasis on localism, Hamilton advocated for a strong central government, fearing that excessive local autonomy would lead to inefficiency, factionalism, and instability. In The Federalist Papers , Hamilton argued that a weak central government, overly reliant on local governance, would be unable to effectively manage the growing nation’s needs. It is interesting to note that the two influential figures formed starkly different views on the optimal division of power between central and local governments by observing the same early United States. Such divergent perspectives persist even today. Most governments around the world have local governments that operate separately from the central government, but the degree of autonomy granted to them varies widely across countries (Bello‐Gomez 2020; Oulasvirta & Turala 2009). Many scholars support a high level of decentralization, arguing that decision-making at local level will foster democracy as they are “closer to the people” in Montesquieu’s sense. However, many others advocate for a more centralized approach to policymaking, including fiscal decisions (e.g., Rodden 2005; Beeri 2024). The argument against decentralization often asserts that political opportunism in policymaking may be stronger in local governments. For instance, local policymakers, who are more directly embedded in their communities, may prioritize short-term political gains over long-term policy effectiveness (Sheffer et al. 2024; Hong 2017; Garrì 2010; Aidt & Dutta 2007). This can manifest in patronage, where local leaders allocate public resources based on loyalty rather than merit, or in fiscal mismanagement, where officials adopt unsustainable spending practices to secure voter support without considering broader economic consequences (Chortareas et al. 2016). Additionally, local governments may be more susceptible to capture by special interest groups, as regulatory oversight is often weaker compared to the national level (Ariktha et al. 2024). In this study, we ask how political opportunism differs when the same policy decisions are made by central governments as opposed to local governments. This is an important question, given that central governments often exert significant influence and discretion over local governments’ policy decisions. Recent studies have revealed considerable variation in the degree of autonomy granted to local governments across different countries (e.g., Ladner, 2023). Among European countries, the Nordic countries and Switzerland rank highest in local autonomy, while South-Eastern European countries generally score the lowest. In the United Kingdom, England remains one of the most centralized nations in the OECD, with regional and local taxes amounting to only 1.7% of GDP, compared to 9.4% in the United States (Financial Times, 2024). Similarly, in South Korea, where the data for this study are drawn from, a large portion of local governments’ budgets is controlled by the central government. Despite such evidence, very little research has examined whether the central government’s control over local policymaking is beneficial, which represents a significant gap in the study of governance. In this article, we present a theoretical framework that explains how political opportunism by central and local governments is shaped by two primary mechanisms: political budget cycles and electoral competition. We then test this framework by leveraging a unique institutional arrangement in Korea, where both central and local governments have the authority to implement fiscal policies for local governments. Specifically, we examine the level of tax cuts and analyze how it varies in response to political budget cycles and electoral competition. By doing so, we assess the relevance of our framework. Our findings reveal that political opportunism by central and local governments is influenced by different mechanisms, and the level of opportunism may depend on the specific contexts in which local governments operate. POLITICAL OPPORTUNISM IN GOVERNMENTS In this study, we examine two theoretical mechanisms—political business cycles and electoral competition—and their interactions. The theory of political business cycles posits that incumbent policymakers show opportunistic behavior in public policies before elections to gain short-term electoral support (Rossel Flores et al. 2024; Garcia & Hayo 2021; Anessi-Pessina & Sicilia 2020; Picazo-Tadeo et al. 2020). Existing literature suggests that pre-election fiscal expansions or tax exemptions serve as signals of an incumbent’s competence and responsiveness (Douglas et al. 2025; Dubois 2016). However, these electoral opportunisms often come at the expense of long-term policy goals (Jacobs, 2016), prioritizing immediate political gains over structural fiscal sustainability (Xiong et al. 2022). This trade-off between short-term electoral incentives and long-term fiscal responsibility has significant implications for public policy and governance (Sheffer et al. 2024). A substantial body of research has explored political budget cycles and their consequences across diverse political and institutional settings. Prior studies highlight the role of credit claiming in political budget cycles, as politicians strategically time fiscal benefits before elections to maximize electoral support (Bueno, 2023; Schneider 2010). Empirical evidence from both democratic and autocratic regimes suggests that politicians frequently manipulate fiscal policies in anticipation of elections. Guo (2009), for example, examines local political budget cycles in China and finds that local leaders increase government spending at critical points to enhance their promotion prospects. Likewise, opportunistic political cycles tend to be more pronounced in young democracies, where government transparency and voter awareness are lower (Akhmedov and Zhuravskaya, 2004). Beyond the political business cycle, electoral competition also plays a critical role in shaping fiscal decisions (e.g., Bracco et al. 2019). The literature suggests that policymakers in highly competitive electoral districts are more likely to engage in opportunistic fiscal behavior, including tax cuts, to secure voter support. Previous research suggests that in highly competitive electoral environments, politicians are more likely to implement expansionary fiscal policies, such as tax cuts, to influence voter perceptions and win elections (Murtinu et al. 2022; Tavares 2021; Pierskalla & Sacks 2020; Aidt et al. 2011). In the context of local governance, Likewise, Tavares (2021) provides evidence that electoral competition shapes the responsiveness of local policymakers. His findings indicate that in highly competitive districts, elected officials allocate resources more strategically to maximize electoral benefits, which can include targeted tax cuts. Similarly, Xiong (2021) finds that political opportunism in public-private partnership contracts increases when electoral stakes are high, reinforcing the idea that competitive elections encourage short-term fiscal maneuvers. Taken altogether, a substantial body of research provides strong evidence that both political business cycles and electoral competition influence fiscal policy decisions. While some studies emphasize the role of fiscal transparency in moderating these effects, others highlight the strategic incentives that emerge in multilevel governance structures (Lee et al. 2024; Bueno 2023). This study builds on these insights by examining how the interplay between electoral competition and political budget cycles shapes tax policy across different levels of government. An important yet underexplored insight from previous research is the impact of multilevel governance on political opportunism. Existing studies highlight how multilevel governance complicates the attribution of policy benefits, creating a strategic environment in which both central and local governments compete to claim credit for fiscal measures (Bueno, 2023). A closely related debate concerns the role of decentralization in moderating political opportunism. Some studies suggest that greater fiscal autonomy at the local level enhances democratic accountability and improves efficiency of local spending (Sun & Andrews 2023; Jimenez 2020; Qiao et al. 2019). However, others argue that local governments, facing direct electoral pressures, may be even more susceptible to short-term fiscal manipulation (Bracco et al. 2024). While extensive research has examined the existence of political opportunism, relatively few studies have explored how institutional design shapes its extent and dynamics (Dubois 2016). This represents a significant gap in the governance literature, as institutional structures and decision-making authority can profoundly impact the level of political opportunism. This study addresses this gap in research and contributes to the broader debate on political opportunism and fiscal governance. Our findings offer new insights into how centralized versus decentralized tax policies influence election-driven fiscal manipulation, shedding light on the strategic behavior of policymakers in multilevel governance systems. HYPOTHESES Political Determinants of Political Opportunism In this study, we explore the determinants of political opportunism in the context of governments’ fiscal policy decisions, particularly tax cuts, within the framework of local and central government interactions. The underlying assumption of our analysis is that tax cuts may serve as evidence of political opportunism (Foremny & Riedel 2014). Of course, tax cuts can, in many cases, be beneficial to the citizenry. However, in this study, we focus on the extent to which tax cuts are associated with either the political business cycle or electoral competition. In other words, if the magnitude of tax cuts increases as an election approaches, or if tax cuts are more pronounced in districts with greater electoral competition, this incremental portion serves as evidence of political opportunism (Douglas et al. 2025; Rossel Flores et al. 2024; Foremny & Riedel 2014; Veiga & Veiga 2007; Franzese Jr 2002). Further, in Korea, where the data for this study are drawn from, local governments face serious fiscal challenges due to rapidly increasing welfare expenditures in response to an aging population. Under such circumstances, if politicians decide to cut taxes just before an election, this may serve as suggestive—yet compelling—evidence of opportunism. The decision of whether to implement tax cuts involves an intertemporal trade-off. When considering tax cuts, policymakers face two primary choices: they can either allocate tax revenue toward government expenditures or implement tax reductions. Both options may be politically advantageous; however, when an election is still several years away, increasing expenditure is often the preferred strategy, as it typically takes time for the benefits of government spending to materialize (Veiga & Veiga 2007). In contrast, as an election nears, policymakers become more inclined toward tax cuts, given that their economic effects are more immediate and directly observable by voters (Veiga & Veiga 2007). Especially, to win the election, incumbents tend to favor easily salient fiscal policies over less visible ones (Hong 2017). We thus propose the following, which we refer to as the ‘political business cycle hypothesis’: H1a: Policymakers are more likely to implement tax cuts as the election approaches. We argue that the ‘political business cycle hypothesis’ should be more pronounced when central governments make fiscal decisions, as opposed to when local governments do. This is due to differences in the sense of ownership over tax revenues. While both central and local governments seek to win elections, local politicians are more directly exposed to the intertemporal trade-off of tax cuts. In other words, if reelected, they may face fiscal constraints resulting from pre-election tax cuts, which could undermine their ability to implement their policy agenda. In contrast, while the central government is concerned with electoral outcomes at the local level, it is relatively less affected by the long-term fiscal sustainability of local governments than local policymakers themselves. This distinction leads us to the following proposition: H1b: The effect of political business cycles on tax cuts is more pronounced when fiscal decisions are made by the central government rather than by local governments. The level of electoral competition may also influence political opportunism (Aidt et al. 2011). Policymakers anticipating tough electoral battles are more likely to implement tax cuts as a strategic tool to appeal to voters (Bracco et al. 2019; Prichard 2018). In South Korea, the interval between local elections is four years, meaning that for the effects of public expenditure to be visible to voters, they must materialize within this time frame. In contrast, tax cuts have a more immediate and direct impact, making them a more attractive option for policymakers seeking electoral advantage. All else being equal, tax cuts are likely to be more prevalent in districts with higher electoral competition. This leads us to the following propositions, which we refer to as the ‘electoral competition hypothesis’: H2a: Policymakers are more likely to implement tax cuts in districts with higher electoral competition The ‘electoral competition hypothesis’ is more relevant when local, not central, policymakers make fiscal decisions. When the central government determines the level of tax cuts, it cannot practically tailor policies to the specific conditions of each region. For instance, in the context of local tax cuts, the government typically implements either reductions in tax rates or exemptions for certain taxable income, but these measures are applied uniformly across localities. Although some regions may benefit more than others, it is difficult to account for the unique circumstances of each locality when designing such policies. Furthermore, even if customization were practically feasible, centrally imposed, region-specific policies may face opposition, as they could be perceived as violating principles of equity if different localities receive different tax treatments. For this reason, when local policies are designed by the central government, they are less likely to consider local factors such as the level of electoral competition. This leads us to the following proposition: H2b: The effect of electoral competition on tax cuts is more pronounced when fiscal decisions are made by local governments rather than by the central government. Thus far, we have explained how political business cycles and electoral competition may influence political opportunism, as measured by the level of tax cuts. Based on these two hypotheses, it follows that tax cuts should be most pronounced when both conditions are met simultaneously. In other words, the political business cycle hypothesis holds more strongly in districts with greater electoral competition. This leads us to the following hypothesis, which captures the interaction between political business cycles and electoral competition: H3: The influence of political business cycles on tax cuts is stronger in districts with higher levels of electoral competition. Based on the hypotheses we formulated, we can visualize the relationship between the variables under investigation. Figure 1 illustrates the theoretical relationship between the political business cycle, electoral competition, and political opportunism. The vertical axis represents the level of political opportunism, measured by the extent of tax cuts. Figure 1.1 depicts the scenario in which the central government makes fiscal decisions, whereas Figure 1.2 represents the case in which local governments are responsible for fiscal decisions. In Figure 1.1, as election day approaches, the level of political opportunism increases uniformly, regardless of the level of electoral competition. In Figure 1.2, however, while political opportunism also increases as the election nears, this effect is primarily observed in districts with high levels of electoral competition. On average, the impact of the political business cycle is expected to be greater in Figure 1.1 than in Figure 1.2. INSTITUTIONAL BACKGROUND: THE LOCAL TAX SYSTEM IN KOREA Many local governments worldwide rely on local taxes to fund public services and meet the needs of their citizens. At the same time, tax cuts serve as a policy tool to achieve economic, social, and policy objectives. This dual role of local taxes—as both a revenue source and a policy instrument—raises important questions about how local and central governments interact in shaping fiscal policy. Tax cuts are often referred to as tax expenditures or tax exemptions, and in this study, we use these terms interchangeably. South Korea’s local tax system, the focus of this study, features structured tax reduction mechanisms that provide tax benefits to specific taxpayers to fulfill economic, social, and policy goals. Local tax cuts in South Korea are governed by several pieces of legislation, primarily the Local Tax Act, the Act on Restriction on Special Cases Concerning Local Taxation, and the Act on Restriction on Special Cases Concerning Taxation. These laws, enacted at the national level, limit the authority of local governments in determining the scale and scope of local tax expenditures. Beyond these national laws, local governments can implement tax cuts through local ordinances. However, until 2011, local governments had very limited discretion over tax cuts. They were required to obtain pre-approval from the central government—specifically, the Ministry of Interior and Safety—before enacting ordinances to reduce local taxes. Critics argued that this overly restrictive regulation violated local autonomy, hindered timely and effective local taxation, and limited local governments’ ability to respond to economic and social changes. To address these concerns, the Act on Restriction on Special Cases Concerning Local Taxation was enacted in 2011 to enhance local autonomy while ensuring fiscal responsibility in tax expenditures. This reform abolished the pre-approval requirement, granting local governments greater discretion in implementing tax reductions. The South Korean local tax expenditure system can be broadly categorized into two types. The first type consists of centrally controlled tax cuts, in which local governments have limited involvement in decision-making, as tax policies are primarily determined at the national level. The second type consists of locally administered tax cuts, where local governments exercise greater autonomy in determining tax reductions and tailoring policies to local needs. This study leverages this distinction between centrally controlled and locally administered tax cuts to examine how political opportunism and fiscal decision-making vary depending on the degree of governmental discretion in tax policy. METHOD Empirical Model To evaluate the hypotheses proposed above, we collected data on tax cuts implemented by Korean governments over a seven-year period from 2016 to 2022. Our analysis aims to examine whether and how the level of tax cuts determined by central and local governments differs and how these differences can be explained by two theoretical mechanisms identified in the literature: political business cycles and electoral competition. Specifically, our model is as follows: $$\:{{TaxCuts}^{C}}_{it}={\beta\:}_{0}+{\beta\:}_{1}\:{Cycle}_{t}+{\beta\:}_{2}\:{ElecComp}_{it}+{\beta\:}_{4}{X}_{it}+{\lambda\:}_{i}+{\eta\:}_{t}+{\nu\:}_{it}$$ 1 $$\:{{TaxCuts}^{L}}_{it}={\beta\:}_{0}+{\beta\:}_{1}\:{Cycle}_{t}+{\beta\:}_{2}\:{ElecComp}_{it}+{\beta\:}_{4}{X}_{it}+{\lambda\:}_{i}+{\eta\:}_{t}+{\nu\:}_{it}$$ 2 In Eq. ( 1 ), the dependent variable is \(\:{{TaxCuts}^{C}}_{it}\) represents the amount of tax cuts implemented by the central government for locality i in year t. Similarly, in Eq. ( 2 ), the dependent variable is \(\:{{TaxCuts}^{L}}_{it}\) represents the amount of tax cuts implemented by local governments for locality i in year t. Both dependent variables are standardized to have a mean of zero and a standard deviation of one to ensure comparability. This standardization is necessary because, in absolute terms, tax cuts determined by the central government tend to be larger on average due to institutional restrictions that limit the discretion of local governments. In this study, we aim to identify the primary mechanisms that drive central and local governments to engage in political opportunism. However, a direct comparison of the absolute level of tax cuts may not be entirely meaningful given the structural differences in fiscal authority between the two levels of government. By standardizing these variables, we focus on how the amount of tax cuts varies in response to the two theoretical mechanisms rather than making direct comparisons of their absolute levels. The right-hand side of Equations ( 1 ) and ( 2 ) is identical. \(\:{Cycle}_{t}\) represents the year in the election cycle, where the year immediately following an election is coded as 1, and the number increases incrementally until the year just before the next election. Thus, if the coefficient is positive, it suggests that the amount of tax cuts increases as election day approaches, supporting the political business cycle hypothesis. \(\:{ElecComp}_{it}\) is the level of electoral competition in locality i in year t , which is measured by the vote margin between the winner and the nearest rival candidate subtracted from 100 (and then divided by 100 to express the value as a proportion). We also control for \(\:{X}_{it}\) , a set of covariates. Broadly, we include three different groups of covariates. First, we control for the characteristics of the local policymaker governing the district. This includes the ideology of the political party to which the local policymaker belongs, coded as 1 if conservative, and 0 otherwise. We also account for whether the local policymaker is serving a second term or higher and the age of the local policymaker. Second, we control for the fiscal situation of the locality. This includes the locality’s total expenditure, the share of expenditure allocated to social spending, and the level of fiscal independence, measured by the share of revenue collected by the locality itself rather than subsidies received from the central government. Third, we control for the characteristics of the locality. Specifically, we include regional GDP and total population as key economic and demographic factors. Lastly, we include locality and year fixed effects to account for unobserved heterogeneity across localities and over time that may not be fully captured by the covariates. Data and Variables In Table 1, we present summary statistics for all variables included in the analysis. The data for this study were gathered from multiple sources. The dependent variables, representing the amount of tax cuts implemented, were collected from the local fiscal settlement data publicly posted on the websites of individual local governments. The level of electoral competition, measured by the vote margin between the winner and the nearest rival, was obtained from the National Election Commission. The year in the election cycle, as well as individual characteristics of local policymakers—including their party affiliation and age—were also gathered from the National Election Commission. Among the covariates, the fiscal situation of the locality was collected from Local Finance Integrated Open System (Local Finance 365), which is maintained by the Korean government. Specifically, we obtained data on the size of annual expenditure, the share of social expenditure, and the locality’s financial capacity. Other economic and demographic variables, including regional GDP and total population, were sourced from Korean Statistical Information Service (KOSIS), which is managed by Statistics Korea. RESULTS The results of our analyses are presented in Tables 2 and 3 . In each of the tables, we used a different measure of tax cuts as a dependent variable. In Table 2 , the dependent variable is the amount of tax cuts implemented by the central government, whereas in Table 3 , the dependent variable is the amount of tax cuts implemented by local governments. Table 2 presents the results for cases in which the central government makes tax cut decisions, with findings shown across three different models. All models include locality and year fixed effects to account for heterogeneity across localities and over time. The first two columns display results with and without covariates to assess whether, and to what extent, the estimated coefficients remain robust when the full set of covariates is included. In Column 3, we introduce an interaction term between the two primary variables—the year in the election cycle and electoral competition level—to examine how these two theoretical mechanisms interact. Overall, we find strong support for the political business cycle hypothesis when the central government makes tax cut decisions. The year in the election cycle is significantly associated with the amount of tax cuts, indicating that the central government increases tax cuts as election day approaches to provide greater benefits to the electorate. This finding suggests that the central government is highly invested in the outcome of local elections and believes that it can claim credit among voters who benefit from these tax cuts. In contrast, when the central government makes tax cut decisions, the electoral competition hypothesis is not supported. This is because the central government cannot tailor tax cuts to individual localities, limiting its ability to respond to local electoral competition. This constraint highlights a fundamental limitation of centralized policymaking. Even if the central government were able to customize tax policies for each locality, such decisions would likely face significant opposition from regions that benefit less, as they may perceive the policy as a violation of equity principles. Ironically, however, this limitation mitigates the political opportunism associated with electoral competition in the case we studied. Table 3 presents the results for cases in which local governments make tax cut decisions for their own localities. As in previous models, all specifications include locality and year fixed effects to account for heterogeneity across localities and over time. Focusing on the first two columns, we find that neither the political business cycle hypothesis nor the electoral competition hypothesis is supported. That is, when local governments implement tax cuts for their own localities, political opportunism is not clearly observed, assuming that political opportunism is defined as an increase in the amount of tax cuts associated with the election cycle and electoral competition. One possible explanation is that local politicians may perceive tax cuts as a threat to mid- to long-term fiscal capacity, particularly if they anticipate being re-elected. In Column 3, we report the results including the interaction term between the year in the election cycle and electoral competition level. In this case, we find that the interaction term is statistically significant, suggesting heterogeneous behavior among local policymakers across localities. Specifically, the significant coefficient of the interaction term indicates that local policymakers facing intense electoral competition implement significantly larger tax cuts as election day approaches compared to their counterparts in less competitive districts. Moreover, the coefficient is not only statistically but also substantively significant, as we will explain below. Figure 2 presents a graphical representation of the estimates from Column 3 of Table 2 and Table 3 , highlighting the theoretical claim. Figure 2.1 is constructed using the coefficients from Column 3 of Table 2 , while Fig. 2.2 is based on the coefficients from Column 3 of Table 3 . The values in the figure were calculated directly from the estimated coefficients. Specifically, we set covariates at their mean values, computed the product of the coefficients and their corresponding values, and summed these quantities. We then added this computed value to those of different configurations of the key variables (i.e., election cycle, electoral competition, and their interaction) (e.g., Krause et al. 2006 ). In the figure, “high level of electoral competition” and “low level of electoral competition” correspond to values that are one standard deviation above and below the mean, respectively. The election cycle is set to either 1 or 4 to visualize how the amount of tax cuts changes as election day approaches. Figure 2 closely aligns with the theoretical expectations illustrated in Fig. 1, providing empirical support for our hypotheses. In Fig. 2.1, which represents cases where the central government makes tax cut decisions, we observe support for the political business cycle hypothesis. The amount of tax cuts increases as election day approaches, and this pattern does not differ significantly between districts with high and low electoral competition. In contrast, Fig. 2.2, which represents cases where local governments make tax cut decisions, shows substantial variation across districts. Specifically, in districts with high electoral competition, tax cuts increase significantly as election day approaches, whereas this pattern is not observed in districts with low electoral competition. Notably, in districts with low electoral competition, the amount of tax cuts appears to decrease as election day nears. However, we believe this pattern is an artifact of the linear assumption imposed on the regression model, rather than an actual strategic behavior by local policymakers. CONCLUSION & DISCUSSION This study examines how political opportunism in local governments varies depending on whether fiscal decisions are controlled by the central government or left to local discretion. Specifically, we propose two theoretical mechanisms that may drive governments to engage in political opportunism—the political business cycle hypothesis and the electoral competition hypothesis—and test these hypotheses in the context of government tax cut decisions. Using a unique institutional setting in South Korea, where both central and local governments have the authority to implement tax cuts, we analyze how political opportunism manifests differently depending on which level of government makes fiscal decisions. Our findings provide key insights into the strategic behavior of policymakers and the broader implications of fiscal decentralization. Our empirical results show strong support for the political business cycle hypothesis when tax cuts are determined by the central government. Specifically, tax cuts increase as election day approaches, suggesting that the central government strategically times fiscal benefits to influence electoral outcomes. However, electoral competition does not significantly influence central government tax cut decisions, likely due to the uniform nature of national tax policies, which prevent the central government from tailoring tax cuts to specific localities. In contrast, when local governments make tax cut decisions, neither the political business cycle nor electoral competition hypothesis is supported in isolation. Local policymakers, who directly bear the fiscal consequences of tax cuts, may refrain from excessive tax reductions due to concerns about long-term financial sustainability. However, the interaction between the election cycle and electoral competition is statistically significant, indicating that local governments in electorally competitive districts are more likely to increase tax cuts as elections approach, while those in less competitive districts do not exhibit this pattern. This suggests that political opportunism at the local level is contingent on electoral incentives and is not uniformly present across all localities. These findings contribute to the broader debate on the advantages and risks of fiscal decentralization. While decentralization is often praised for fostering political accountability and responsiveness, our results suggest that its effect on political opportunism is conditional on electoral dynamics. On the one hand, local policymakers who are directly accountable for fiscal decisions may face constraints that limit excessive tax cuts, particularly when long-term fiscal sustainability is a concern. On the other hand, in highly competitive districts, electoral incentives may intensify strategic tax cuts, demonstrating that local fiscal autonomy does not uniformly constrain political opportunism. Furthermore, our findings highlight an important trade-off in multilevel governance. Centralized fiscal policies ensure equity across regions but limit local responsiveness to regional economic conditions. In contrast, local fiscal autonomy allows for greater adaptability but may introduce electoral incentives that influence tax policy decisions in competitive districts. This suggests that the optimal balance between centralization and decentralization depends on the institutional safeguards that regulate fiscal decision-making and prevent excessive political manipulation. Our study raises several questions for future research. First, while we focus on tax cuts as a measure of political opportunism, future studies could explore other fiscal instruments, such as targeted spending increases or public-sector hiring patterns, to provide a more comprehensive picture of pre-election fiscal strategies. Second, the effectiveness of institutional constraints on political opportunism—such as balanced budget rules or independent fiscal oversight—warrants further investigation. Third, cross-national comparisons could help determine whether our findings generalize beyond South Korea or whether specific institutional features shape the dynamics of tax policy and electoral incentives differently across countries. This study demonstrates that political business cycles and electoral competition influence tax policy decisions differently at the central and local government levels. While the central government systematically increases tax cuts as elections approach, local governments exhibit heterogeneous patterns, with political opportunism primarily occurring in electorally competitive districts. These findings suggest that local fiscal autonomy can serve as both a constraint and a facilitator of political opportunism, depending on the electoral context and institutional constraints. Ultimately, our findings underscore the importance of institutional design in shaping political incentives. Policymakers must carefully consider how fiscal authority is distributed across government levels to minimize electoral distortions while ensuring efficient and responsive public finance management. Declarations FUNDING STATEMENT This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2024S1A3A2A07046094). Author Contribution S.H. wrote the main manuscript text and S.J. collected data and prepared figures and tables. All authors reviewed the manuscript. References Aidt, T. S., & Dutta, J. (2007). Policy myopia and economic growth. European Journal of Political Economy , 23 (3), 734-753. Aidt, T. S., Veiga, F. J., & Veiga, L. G. (2011). Election results and opportunistic policies: A new test of the rational political business cycle model. Public choice , 148 , 21-44. Akhmedov, A., & Zhuravskaya, E. (2004). Opportunistic political cycles: test in a young democracy setting. 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Ladner, A., Keuffer, N., & Bastianen, A. (2023). Local autonomy around the world: the updated and extended Local Autonomy Index (LAI 2.0). Regional & Federal Studies , 1-23. Lee, D., Min, S., & Park, S. (2024). Political budget cycle and the alignment effect: Evidence from South Korea. European Journal of Political Economy , 81 , 102485. Murtinu, S., Piccirilli, G., & Sacchi, A. (2022). Rational inattention and politics: how parties use fiscal policies to manipulate voters. Public Choice , 1-22. Garcia, I., & Hayo, B. (2021). Political budget cycles revisited: Testing the signalling process. European Journal of Political Economy , 69 , 102030. Garrì, I. (2010). Political short-termism: a possible explanation. Public choice , 145 , 197-211. Guo, G. (2009). China's local political budget cycles. American Journal of Political Science , 53 (3), 621-632. Oulasvirta, L., & Turala, M. (2009). Financial autonomy and consistency of central government policy towards local governments. International Review of Administrative Sciences , 75 (2), 311-332. Picazo-Tadeo, A. J., González-Gómez, F., & Suárez-Varela, M. (2020). Electoral opportunism and water pricing with incomplete transfer of control rights. Local Government Studies , 46 (6), 1015-1038. Pierskalla, J. H., & Sacks, A. (2020). Personnel politics: Elections, clientelistic competition and teacher hiring in indonesia. British Journal of Political Science , 50 (4), 1283-1305. Prichard, W. (2018). Electoral competitiveness, tax bargaining and political incentives in developing countries: Evidence from political budget cycles affecting taxation. British Journal of Political Science , 48 (2), 427-457. Qiao, M., Ding, S., & Liu, Y. (2019). Fiscal decentralization and government size: The role of democracy. European Journal of Political Economy , 59 , 316-330. Rodden, J. (2005). Hamilton’s Paradox: Promise and Perils of Fiscal Federalism . New York: Cambridge University Press Rossel Flores, L., Huysmans, M., & Ferwerda, J. (2024). The political business cycle of tax reforms. Public Choice , 200 (1), 65-88. Schneider, C. J. (2010). Fighting with one hand tied behind the back: political budget cycles in the West German states. Public Choice , 142 , 125-150. Sheffer, L., Loewen, P. J., & Lucas, J. (2024). Long‐term policymaking and politicians' beliefs about voters: Evidence from a 3‐year panel study of politicians. Governance , 37 (2), 395-410. Sun, S., & Andrews, R. (2023). Intra‐provincial fiscal decentralization, relative wealth, and healthcare efficiency: Empirical evidence from China. Public Administration , 101 (3), 973-992. Veiga, L. G., & Veiga, F. J. (2007). Political business cycles at the municipal level. Public Choice , 131 , 45-64. Xiong, W., Zhong, N., Wang, F., Zhang, M., & Chen, B. (2022). Political opportunism and transaction costs in contractual choice of public–private partnerships. Public Administration , 100 (4), 1125-1144. Tables TABLE 1. Summary Statistics Variable Obs. Mean Standard Deviation Tax Cuts (implemented by the Central Government) 1582 0 1 Tax Cuts (implemented by Local Governments) 1582 0 1 Election Cycle (1 to 4) 1582 2.571 1.178 Electoral Competition 1582 0.813 0.168 Conservative Party 1582 0.374 0.484 Second Term or Higher 1582 0.463 0.499 Age 1582 58.728 6.100 Total Expenditure (in millions of KRW) 1582 776,443 558,652 Social Expenditure (as % of total expenditure) 1582 40.638 14.528 Fiscal Independence (%) 1582 18.819 10.861 Regional GDP (in millions of KRW) 1582 15.241 1.130 Local Population ( in log ) 1582 11.820 1.057 TABLE 2. When the Central Government Makes the Decision Dependent variable : Tax Cuts (implemented by the Central Government) (1) (2) (3) Election Cycle 0.038 ** 0.040 ** 0.041 ** (0.010) (0.011) (0.011) Electoral Competition 0.151 0.172 0.182 (0.125) (0.108) (0.116) Election Cycle × Electoral Competition 0.054 (0.059) Conservative -0.010 -0.006 (0.024) (0.023) Second Term or Higher -0.023 -0.022 (0.038) (0.037) Age -0.001 -0.001 (0.002) (0.002) Total Expenditure 0.000 ** 0.000 ** (0.000) (0.000) Share of Social Expenditure 0.005 0.005 (0.004) (0.004) Fiscal Independence -0.016 ** -0.017 ** (0.003) (0.003) Regional GDP -0.032 -0.028 (0.153) (0.151) Total Local Population ( in log ) -0.529 ** -0.513 * (0.255) (0.263) N 1582 1582 1582 R 2 0.851 0.853 0.853 Note: Standard errors in parentheses, * p < 0.10, ** p < 0.05; all models include locality and year fixed effects to account for heterogeneity across localities and over time. TABLE 3. When Local Governments Make the Decision Dependent variable : Tax Cuts (implemented by Local Governments) (1) (2) (3) Election Cycle -0.027 0.005 0.016 (0.030) (0.035) (0.034) Electoral Competition 0.071 0.009 0.121 (0.220) (0.222) (0.200) Election Cycle × Electoral Competition 0.582 ** (0.139) Conservative 0.093 0.135 ** (0.069) (0.069) Second Term or Higher -0.076 -0.067 (0.054) (0.054) Age 0.019** 0.018 ** (0.005) (0.005) Total Expenditure 0.000 0.000 (0.000) (0.000) Share of Social Expenditure -0.026** -0.025 ** (0.009) (0.009) Fiscal Independence 0.005 -0.001 (0.009) (0.009) Regional GDP 0.004 0.056 (0.464) (0.458) Total Local Population ( in log ) -0.612 -0.442 (0.581) (0.559) N 1582 1582 1582 R 2 0.386 0.398 0.411 Note: Standard errors in parentheses, * p < 0.10, ** p < 0.05; all models include locality and year fixed effects to account for heterogeneity across localities and over time. Additional Declarations No competing interests reported. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6244409","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":434230169,"identity":"2af7458f-1191-451d-adba-97894a9d1033","order_by":0,"name":"Sounman Hong","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAABCElEQVRIiWNgGAWjYDADAxDxAcxkbIALENTCOINkLcw86NZiA/LtPWaPbtTcYTBn7z382rbNJk++vbmB4UcNg7F5Aw7Dz5wxN8459ozBsudcmnVuW1qxwZmDDYw9xxjMZA7g0CKRYyadw3aYweBGjplxbtvhxA0SiQ0MvA0MNhK4HDYDpOUfVIslUMv8+Q8bGP/i0cIAVCkNNBykxfgxI1BLww3GBmagLWa4tBicOVYmndt3GOQpM0agfxI3nElsOCxzTMIYp8Pam7dJ53wDajneY/zhR5lN4vz24w8fvqmxMZyBy2FQUN/AwMAmwcgG4R1gYMDpExTA/IHhD1EKR8EoGAWjYIQBAN/bWzxKoOeSAAAAAElFTkSuQmCC","orcid":"","institution":"Yonsei University","correspondingAuthor":true,"prefix":"","firstName":"Sounman","middleName":"","lastName":"Hong","suffix":""},{"id":434230170,"identity":"93c92dae-1545-47a4-a033-b6eef8d8b7f0","order_by":1,"name":"Suho Ji","email":"","orcid":"","institution":"Yonsei University","correspondingAuthor":false,"prefix":"","firstName":"Suho","middleName":"","lastName":"Ji","suffix":""}],"badges":[],"createdAt":"2025-03-17 12:08:25","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-6244409/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6244409/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":79671580,"identity":"f1203554-be35-4ea8-a648-b275cb25170f","added_by":"auto","created_at":"2025-04-01 11:21:40","extension":"png","order_by":1,"title":"Figure 1","display":"","copyAsset":false,"role":"figure","size":84671,"visible":true,"origin":"","legend":"\u003cp\u003eTheoretical Relationship between Political Cycles and Electoral Competition\u003c/p\u003e","description":"","filename":"1.png","url":"https://assets-eu.researchsquare.com/files/rs-6244409/v1/7158e722124b433ef2436535.png"},{"id":79671588,"identity":"34326c40-8af0-4392-b31e-5779d202a229","added_by":"auto","created_at":"2025-04-01 11:21:40","extension":"png","order_by":2,"title":"Figure 2","display":"","copyAsset":false,"role":"figure","size":140072,"visible":true,"origin":"","legend":"\u003cp\u003eEmpirical Relationship between Political Cycles and Electoral Competition\u003c/p\u003e","description":"","filename":"2.png","url":"https://assets-eu.researchsquare.com/files/rs-6244409/v1/5403ad1b9447ec62087800dd.png"},{"id":83627538,"identity":"d4b8cfe4-491b-438f-a616-37aca38b6cf1","added_by":"auto","created_at":"2025-05-29 17:31:47","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":849350,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6244409/v1/386dd096-7478-468f-a91e-040abbb9d9f7.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Strategic Tax Cuts: How Central and Local Governments Respond to Political Incentives","fulltext":[{"header":"INTRODUCTION","content":"\u003cp\u003eIn his influential work, Tocqueville observed that local government was beneficial by examining cases from the early United States. He argued that decentralized governance in townships enabled individuals to take an active role in public affairs, thereby strengthening democratic institutions and fostering a sense of political responsibility. Interestingly, however, one of the early founders of the U.S., Hamilton, made a different argument. In contrast to Tocqueville\u0026rsquo;s emphasis on localism, Hamilton advocated for a strong central government, fearing that excessive local autonomy would lead to inefficiency, factionalism, and instability. In \u003cem\u003eThe Federalist Papers\u003c/em\u003e, Hamilton argued that a weak central government, overly reliant on local governance, would be unable to effectively manage the growing nation\u0026rsquo;s needs.\u003c/p\u003e\n\u003cp\u003eIt is interesting to note that the two influential figures formed starkly different views on the optimal division of power between central and local governments by observing the same early United States. Such divergent perspectives persist even today. Most governments around the world have local governments that operate separately from the central government, but the degree of autonomy granted to them varies widely across countries (Bello‐Gomez 2020; Oulasvirta \u0026amp; Turala 2009). Many scholars support a high level of decentralization, arguing that decision-making at local level will foster democracy as they are \u0026ldquo;closer to the people\u0026rdquo; in Montesquieu\u0026rsquo;s sense. However, many others advocate for a more centralized approach to policymaking, including fiscal decisions (e.g., Rodden 2005; Beeri 2024).\u003c/p\u003e\n\u003cp\u003eThe argument against decentralization often asserts that political opportunism in policymaking may be stronger in local governments. For instance, local policymakers, who are more directly embedded in their communities, may prioritize short-term political gains over long-term policy effectiveness (Sheffer et al. 2024;\u0026nbsp;Hong 2017;\u0026nbsp;Garr\u0026igrave; 2010; Aidt \u0026amp; Dutta 2007). This can manifest in patronage, where local leaders allocate public resources based on loyalty rather than merit, or in fiscal mismanagement, where officials adopt unsustainable spending practices to secure voter support without considering broader economic consequences (Chortareas et al. 2016). Additionally, local governments may be more susceptible to capture by special interest groups, as regulatory oversight is often weaker compared to the national level (Ariktha et al. 2024).\u003c/p\u003e\n\u003cp\u003eIn this study, we ask how political opportunism differs when the same policy decisions are made by central governments as opposed to local governments. This is an important question, given that central governments often exert significant influence and discretion over local governments\u0026rsquo; policy decisions. Recent studies have revealed considerable variation in the degree of autonomy granted to local governments across different countries (e.g., Ladner, 2023). Among European countries, the Nordic countries and Switzerland rank highest in local autonomy, while South-Eastern European countries generally score the lowest. In the United Kingdom, England remains one of the most centralized nations in the OECD, with regional and local taxes amounting to only 1.7% of GDP, compared to 9.4% in the United States (Financial Times, 2024). Similarly, in South Korea, where the data for this study are drawn from, a large portion of local governments\u0026rsquo; budgets is controlled by the central government. Despite such evidence, very little research has examined whether the central government\u0026rsquo;s control over local policymaking is beneficial, which represents a significant gap in the study of governance.\u003c/p\u003e\n\u003cp\u003eIn this article, we present a theoretical framework that explains how political opportunism by central and local governments is shaped by two primary mechanisms: political budget cycles and electoral competition. We then test this framework by leveraging a unique institutional arrangement in Korea, where both central and local governments have the authority to implement fiscal policies for local governments. Specifically, we examine the level of tax cuts and analyze how it varies in response to political budget cycles and electoral competition. By doing so, we assess the relevance of our framework. Our findings reveal that political opportunism by central and local governments is influenced by different mechanisms, and the level of opportunism may depend on the specific contexts in which local governments operate.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003ePOLITICAL OPPORTUNISM IN GOVERNMENTS\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eIn this study, we examine two theoretical mechanisms\u0026mdash;political business cycles and electoral competition\u0026mdash;and their interactions. The theory of political business cycles posits that incumbent policymakers show opportunistic behavior in public policies before elections to gain short-term electoral support (Rossel Flores et al. 2024; Garcia \u0026amp; Hayo 2021; Anessi-Pessina \u0026amp; Sicilia 2020; Picazo-Tadeo et al. 2020). Existing literature suggests that pre-election fiscal expansions or tax exemptions serve as signals of an incumbent\u0026rsquo;s competence and responsiveness (Douglas et al. 2025; Dubois 2016). However, these electoral opportunisms often come at the expense of long-term policy goals (Jacobs, 2016), prioritizing immediate political gains over structural fiscal sustainability (Xiong et al. 2022). This trade-off between short-term electoral incentives and long-term fiscal responsibility has significant implications for public policy and governance (Sheffer et al. 2024).\u003c/p\u003e\n\u003cp\u003eA substantial body of research has explored political budget cycles and their consequences across diverse political and institutional settings. Prior studies highlight the role of credit claiming in political budget cycles, as politicians strategically time fiscal benefits before elections to maximize electoral support (Bueno, 2023; Schneider 2010). Empirical evidence from both democratic and autocratic regimes suggests that politicians frequently manipulate fiscal policies in anticipation of elections. Guo (2009), for example, examines local political budget cycles in China and finds that local leaders increase government spending at critical points to enhance their promotion prospects. Likewise, opportunistic political cycles tend to be more pronounced in young democracies, where government transparency and voter awareness are lower (Akhmedov and Zhuravskaya, 2004).\u003c/p\u003e\n\u003cp\u003eBeyond the political business cycle, electoral competition also plays a critical role in shaping fiscal decisions (e.g., Bracco et al. 2019). The literature suggests that policymakers in highly competitive electoral districts are more likely to engage in opportunistic fiscal behavior, including tax cuts, to secure voter support. Previous research suggests that in highly competitive electoral environments, politicians are more likely to implement expansionary fiscal policies, such as tax cuts, to influence voter perceptions and win elections (Murtinu et al. 2022; Tavares 2021; Pierskalla \u0026amp; Sacks 2020;\u0026nbsp;Aidt et al. 2011). In the context of local governance, Likewise, Tavares (2021) provides evidence that electoral competition shapes the responsiveness of local policymakers. His findings indicate that in highly competitive districts, elected officials allocate resources more strategically to maximize electoral benefits, which can include targeted tax cuts. Similarly, Xiong (2021) finds that political opportunism in public-private partnership contracts increases when electoral stakes are high, reinforcing the idea that competitive elections encourage short-term fiscal maneuvers.\u003c/p\u003e\n\u003cp\u003eTaken altogether, a substantial body of research provides strong evidence that both political business cycles and electoral competition influence fiscal policy decisions. While some studies emphasize the role of fiscal transparency in moderating these effects, others highlight the strategic incentives that emerge in multilevel governance structures (Lee et al. 2024; Bueno 2023). This study builds on these insights by examining how the interplay between electoral competition and political budget cycles shapes tax policy across different levels of government.\u003c/p\u003e\n\u003cp\u003eAn important yet underexplored insight from previous research is the impact of multilevel governance on political opportunism. Existing studies highlight how multilevel governance complicates the attribution of policy benefits, creating a strategic environment in which both central and local governments compete to claim credit for fiscal measures (Bueno, 2023). A closely related debate concerns the role of decentralization in moderating political opportunism. Some studies suggest that greater fiscal autonomy at the local level enhances democratic accountability and improves efficiency of local spending (Sun \u0026amp; Andrews 2023; Jimenez 2020; Qiao et al. 2019). However, others argue that local governments, facing direct electoral pressures, may be even more susceptible to short-term fiscal manipulation (Bracco et al. 2024).\u003c/p\u003e\n\u003cp\u003eWhile extensive research has examined the existence of political opportunism, relatively few studies have explored how institutional design shapes its extent and dynamics (Dubois 2016). This represents a significant gap in the governance literature, as institutional structures and decision-making authority can profoundly impact the level of political opportunism. This study addresses this gap in research and contributes to the broader debate on political opportunism and fiscal governance. Our findings offer new insights into how centralized versus decentralized tax policies influence election-driven fiscal manipulation, shedding light on the strategic behavior of policymakers in multilevel governance systems.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eHYPOTHESES\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003e\u003cem\u003ePolitical Determinants of Political Opportunism\u0026nbsp;\u003c/em\u003e\u003c/p\u003e\n\u003cp\u003eIn this study, we explore the determinants of political opportunism in the context of governments\u0026rsquo; fiscal policy decisions, particularly tax cuts, within the framework of local and central government interactions. The underlying assumption of our analysis is that tax cuts may serve as evidence of political opportunism (Foremny \u0026amp; Riedel 2014). Of course, tax cuts can, in many cases, be beneficial to the citizenry. However, in this study, we focus on the extent to which tax cuts are associated with either the political business cycle or electoral competition. In other words, if the magnitude of tax cuts increases as an election approaches, or if tax cuts are more pronounced in districts with greater electoral competition, this incremental portion serves as evidence of political opportunism (Douglas et al. 2025;\u0026nbsp;Rossel Flores et al. 2024; Foremny \u0026amp; Riedel 2014; Veiga \u0026amp; Veiga 2007; Franzese Jr 2002). Further, in Korea, where the data for this study are drawn from, local governments face serious fiscal challenges due to rapidly increasing welfare expenditures in response to an aging population. Under such circumstances, if politicians decide to cut taxes just before an election, this may serve as suggestive\u0026mdash;yet compelling\u0026mdash;evidence of opportunism.\u003c/p\u003e\n\u003cp\u003eThe decision of whether to implement tax cuts involves an intertemporal trade-off. When considering tax cuts, policymakers face two primary choices: they can either allocate tax revenue toward government expenditures or implement tax reductions. Both options may be politically advantageous; however, when an election is still several years away, increasing expenditure is often the preferred strategy, as it typically takes time for the benefits of government spending to materialize (Veiga \u0026amp; Veiga 2007). In contrast, as an election nears, policymakers become more inclined toward tax cuts, given that their economic effects are more immediate and directly observable by voters (Veiga \u0026amp; Veiga 2007). Especially, to win the election, incumbents tend to favor easily salient fiscal policies over less visible ones (Hong 2017). We thus propose the following, which we refer to as the \u0026lsquo;political business cycle hypothesis\u0026rsquo;:\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH1a:\u003c/em\u003e\u003c/strong\u003e\u003cem\u003e\u0026nbsp;\u003c/em\u003ePolicymakers are more likely to implement tax cuts as the election approaches.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eWe argue that the \u0026lsquo;political business cycle hypothesis\u0026rsquo; should be more pronounced when central governments make fiscal decisions, as opposed to when local governments do. This is due to differences in the sense of ownership over tax revenues. While both central and local governments seek to win elections, local politicians are more directly exposed to the intertemporal trade-off of tax cuts. In other words, if reelected, they may face fiscal constraints resulting from pre-election tax cuts, which could undermine their ability to implement their policy agenda. In contrast, while the central government is concerned with electoral outcomes at the local level, it is relatively less affected by the long-term fiscal sustainability of local governments than local policymakers themselves. This distinction leads us to the following proposition:\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH1b:\u0026nbsp;\u003c/em\u003e\u003c/strong\u003eThe effect of political business cycles on tax cuts is more pronounced when fiscal decisions are made by the central government rather than by local governments.\u003cstrong\u003e\u003cem\u003e\u0026nbsp;\u003c/em\u003e\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eThe level of electoral competition may also influence political opportunism (Aidt et al. 2011). Policymakers anticipating tough electoral battles are more likely to implement tax cuts as a strategic tool to appeal to voters (Bracco et al. 2019; Prichard 2018). In South Korea, the interval between local elections is four years, meaning that for the effects of public expenditure to be visible to voters, they must materialize within this time frame. In contrast, tax cuts have a more immediate and direct impact, making them a more attractive option for policymakers seeking electoral advantage. All else being equal, tax cuts are likely to be more prevalent in districts with higher electoral competition. This leads us to the following propositions, which we refer to as the \u0026lsquo;electoral competition hypothesis\u0026rsquo;:\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH2a:\u003c/em\u003e\u003c/strong\u003e\u003cem\u003e\u0026nbsp;\u003c/em\u003ePolicymakers are more likely to implement tax cuts in districts with higher electoral competition\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThe \u0026lsquo;electoral competition hypothesis\u0026rsquo; is more relevant when local, not central, policymakers make fiscal decisions. When the central government determines the level of tax cuts, it cannot practically tailor policies to the specific conditions of each region. For instance, in the context of local tax cuts, the government typically implements either reductions in tax rates or exemptions for certain taxable income, but these measures are applied uniformly across localities. Although some regions may benefit more than others, it is difficult to account for the unique circumstances of each locality when designing such policies. Furthermore, even if customization were practically feasible, centrally imposed, region-specific policies may face opposition, as they could be perceived as violating principles of equity if different localities receive different tax treatments. For this reason, when local policies are designed by the central government, they are less likely to consider local factors such as the level of electoral competition. This leads us to the following proposition:\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH2b:\u0026nbsp;\u003c/em\u003e\u003c/strong\u003eThe effect of electoral competition on tax cuts is more pronounced when fiscal decisions are made by local governments rather than by the central government.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThus far, we have explained how political business cycles and electoral competition may influence political opportunism, as measured by the level of tax cuts. Based on these two hypotheses, it follows that tax cuts should be most pronounced when both conditions are met simultaneously. In other words, the political business cycle hypothesis holds more strongly in districts with greater electoral competition. This leads us to the following hypothesis, which captures the interaction between political business cycles and electoral competition:\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003e\u003cem\u003eH3:\u003c/em\u003e\u003c/strong\u003e\u003cem\u003e\u0026nbsp;\u003c/em\u003eThe influence of political business cycles on tax cuts is stronger in districts with higher levels of electoral competition.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eBased on the hypotheses we formulated, we can visualize the relationship between the variables under investigation. Figure 1 illustrates the theoretical relationship between the political business cycle, electoral competition, and political opportunism. The vertical axis represents the level of political opportunism, measured by the extent of tax cuts. Figure 1.1 depicts the scenario in which the central government makes fiscal decisions, whereas Figure 1.2 represents the case in which local governments are responsible for fiscal decisions. In Figure 1.1, as election day approaches, the level of political opportunism increases uniformly, regardless of the level of electoral competition. In Figure 1.2, however, while political opportunism also increases as the election nears, this effect is primarily observed in districts with high levels of electoral competition. On average, the impact of the political business cycle is expected to be greater in Figure 1.1 than in Figure 1.2.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eINSTITUTIONAL BACKGROUND: THE LOCAL TAX SYSTEM IN KOREA\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eMany local governments worldwide rely on local taxes to fund public services and meet the needs of their citizens. At the same time, tax cuts serve as a policy tool to achieve economic, social, and policy objectives. This dual role of local taxes\u0026mdash;as both a revenue source and a policy instrument\u0026mdash;raises important questions about how local and central governments interact in shaping fiscal policy. Tax cuts are often referred to as tax expenditures or tax exemptions, and in this study, we use these terms interchangeably.\u003c/p\u003e\n\u003cp\u003eSouth Korea\u0026rsquo;s local tax system, the focus of this study, features structured tax reduction mechanisms that provide tax benefits to specific taxpayers to fulfill economic, social, and policy goals. Local tax cuts in South Korea are governed by several pieces of legislation, primarily the Local Tax Act, the Act on Restriction on Special Cases Concerning Local Taxation, and\u0026nbsp;the Act on Restriction on Special Cases Concerning Taxation. These laws, enacted at the national level, limit the authority of local governments in determining the scale and scope of local tax expenditures.\u003c/p\u003e\n\u003cp\u003eBeyond these national laws, local governments can implement tax cuts through local ordinances. However, until 2011, local governments had very limited discretion over tax cuts. They were required to obtain pre-approval from the central government\u0026mdash;specifically, the Ministry of Interior and Safety\u0026mdash;before enacting ordinances to reduce local taxes. Critics argued that this overly restrictive regulation violated local autonomy, hindered timely and effective local taxation, and limited local governments\u0026rsquo; ability to respond to economic and social changes. To address these concerns, the Act on Restriction on Special Cases Concerning Local Taxation was enacted in 2011 to enhance local autonomy while ensuring fiscal responsibility in tax expenditures. This reform abolished the pre-approval requirement, granting local governments greater discretion in implementing tax reductions.\u0026nbsp;\u003c/p\u003e\n\u003cp\u003eThe South Korean local tax expenditure system can be broadly categorized into two types. The first type consists of centrally controlled tax cuts, in which local governments have limited involvement in decision-making, as tax policies are primarily determined at the national level. The second type consists of locally administered tax cuts, where local governments exercise greater autonomy in determining tax reductions and tailoring policies to local needs. This study leverages this distinction between centrally controlled and locally administered tax cuts to examine how political opportunism and fiscal decision-making vary depending on the degree of governmental discretion in tax policy.\u003c/p\u003e"},{"header":"METHOD","content":"\u003cdiv id=\"Sec7\" class=\"Section2\"\u003e \u003ch2\u003eEmpirical Model\u003c/h2\u003e \u003cp\u003eTo evaluate the hypotheses proposed above, we collected data on tax cuts implemented by Korean governments over a seven-year period from 2016 to 2022. Our analysis aims to examine whether and how the level of tax cuts determined by central and local governments differs and how these differences can be explained by two theoretical mechanisms identified in the literature: political business cycles and electoral competition. Specifically, our model is as follows:\u003cdiv id=\"Equ1\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equ1\" name=\"EquationSource\"\u003e\n$$\\:{{TaxCuts}^{C}}_{it}={\\beta\\:}_{0}+{\\beta\\:}_{1}\\:{Cycle}_{t}+{\\beta\\:}_{2}\\:{ElecComp}_{it}+{\\beta\\:}_{4}{X}_{it}+{\\lambda\\:}_{i}+{\\eta\\:}_{t}+{\\nu\\:}_{it}$$\u003c/div\u003e\u003cdiv class=\"EquationNumber\"\u003e1\u003c/div\u003e\u003c/div\u003e\u003cdiv id=\"Equ2\" class=\"Equation\"\u003e\u003cdiv format=\"TEX\" class=\"mathdisplay\" id=\"FileID_Equ2\" name=\"EquationSource\"\u003e\n$$\\:{{TaxCuts}^{L}}_{it}={\\beta\\:}_{0}+{\\beta\\:}_{1}\\:{Cycle}_{t}+{\\beta\\:}_{2}\\:{ElecComp}_{it}+{\\beta\\:}_{4}{X}_{it}+{\\lambda\\:}_{i}+{\\eta\\:}_{t}+{\\nu\\:}_{it}$$\u003c/div\u003e\u003cdiv class=\"EquationNumber\"\u003e2\u003c/div\u003e\u003c/div\u003e\u003c/p\u003e \u003cp\u003eIn Eq.\u0026nbsp;(\u003cspan refid=\"Equ1\" class=\"InternalRef\"\u003e1\u003c/span\u003e), the dependent variable is \u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:{{TaxCuts}^{C}}_{it}\\)\u003c/span\u003e\u003c/span\u003e represents the amount of tax cuts implemented by the central government for locality \u003cem\u003ei\u003c/em\u003e in year \u003cem\u003et.\u003c/em\u003e Similarly, in Eq.\u0026nbsp;(\u003cspan refid=\"Equ2\" class=\"InternalRef\"\u003e2\u003c/span\u003e), the dependent variable is \u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:{{TaxCuts}^{L}}_{it}\\)\u003c/span\u003e\u003c/span\u003e represents the amount of tax cuts implemented by local governments for locality \u003cem\u003ei\u003c/em\u003e in year \u003cem\u003et.\u003c/em\u003e\u003c/p\u003e \u003cp\u003eBoth dependent variables are standardized to have a mean of zero and a standard deviation of one to ensure comparability. This standardization is necessary because, in absolute terms, tax cuts determined by the central government tend to be larger on average due to institutional restrictions that limit the discretion of local governments. In this study, we aim to identify the primary mechanisms that drive central and local governments to engage in political opportunism. However, a direct comparison of the absolute level of tax cuts may not be entirely meaningful given the structural differences in fiscal authority between the two levels of government. By standardizing these variables, we focus on how the amount of tax cuts varies in response to the two theoretical mechanisms rather than making direct comparisons of their absolute levels.\u003c/p\u003e \u003cp\u003eThe right-hand side of Equations (\u003cspan refid=\"Equ1\" class=\"InternalRef\"\u003e1\u003c/span\u003e) and (\u003cspan refid=\"Equ2\" class=\"InternalRef\"\u003e2\u003c/span\u003e) is identical. \u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:{Cycle}_{t}\\)\u003c/span\u003e\u003c/span\u003e represents the year in the election cycle, where the year immediately following an election is coded as 1, and the number increases incrementally until the year just before the next election. Thus, if the coefficient is positive, it suggests that the amount of tax cuts increases as election day approaches, supporting the political business cycle hypothesis. \u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:{ElecComp}_{it}\\)\u003c/span\u003e\u003c/span\u003e is the level of electoral competition in locality \u003cem\u003ei\u003c/em\u003e in year \u003cem\u003et\u003c/em\u003e, which is measured by the vote margin between the winner and the nearest rival candidate subtracted from 100 (and then divided by 100 to express the value as a proportion).\u003c/p\u003e \u003cp\u003eWe also control for \u003cspan class=\"InlineEquation\"\u003e\u003cspan class=\"mathinline\"\u003e\\(\\:{X}_{it}\\)\u003c/span\u003e\u003c/span\u003e, a set of covariates. Broadly, we include three different groups of covariates. First, we control for the characteristics of the local policymaker governing the district. This includes the ideology of the political party to which the local policymaker belongs, coded as 1 if conservative, and 0 otherwise. We also account for whether the local policymaker is serving a second term or higher and the age of the local policymaker. Second, we control for the fiscal situation of the locality. This includes the locality\u0026rsquo;s total expenditure, the share of expenditure allocated to social spending, and the level of fiscal independence, measured by the share of revenue collected by the locality itself rather than subsidies received from the central government. Third, we control for the characteristics of the locality. Specifically, we include regional GDP and total population as key economic and demographic factors. Lastly, we include locality and year fixed effects to account for unobserved heterogeneity across localities and over time that may not be fully captured by the covariates.\u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec8\" class=\"Section2\"\u003e \u003ch2\u003eData and Variables\u003c/h2\u003e \u003cp\u003eIn Table\u0026nbsp;1, we present summary statistics for all variables included in the analysis. The data for this study were gathered from multiple sources. The dependent variables, representing the amount of tax cuts implemented, were collected from the local fiscal settlement data publicly posted on the websites of individual local governments. The level of electoral competition, measured by the vote margin between the winner and the nearest rival, was obtained from the National Election Commission. The year in the election cycle, as well as individual characteristics of local policymakers\u0026mdash;including their party affiliation and age\u0026mdash;were also gathered from the National Election Commission. Among the covariates, the fiscal situation of the locality was collected from Local Finance Integrated Open System (Local Finance 365), which is maintained by the Korean government. Specifically, we obtained data on the size of annual expenditure, the share of social expenditure, and the locality\u0026rsquo;s financial capacity. Other economic and demographic variables, including regional GDP and total population, were sourced from Korean Statistical Information Service (KOSIS), which is managed by Statistics Korea.\u003c/p\u003e \u003c/div\u003e"},{"header":"RESULTS","content":"\u003cp\u003eThe results of our analyses are presented in Tables\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e2\u003c/span\u003e and \u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e3\u003c/span\u003e. In each of the tables, we used a different measure of tax cuts as a dependent variable. In Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e2\u003c/span\u003e, the dependent variable is the amount of tax cuts implemented by the central government, whereas in Table\u0026nbsp;\u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e3\u003c/span\u003e, the dependent variable is the amount of tax cuts implemented by local governments.\u003c/p\u003e \u003cp\u003eTable\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e2\u003c/span\u003e presents the results for cases in which the central government makes tax cut decisions, with findings shown across three different models. All models include locality and year fixed effects to account for heterogeneity across localities and over time. The first two columns display results with and without covariates to assess whether, and to what extent, the estimated coefficients remain robust when the full set of covariates is included. In Column 3, we introduce an interaction term between the two primary variables\u0026mdash;the year in the election cycle and electoral competition level\u0026mdash;to examine how these two theoretical mechanisms interact. Overall, we find strong support for the political business cycle hypothesis when the central government makes tax cut decisions. The year in the election cycle is significantly associated with the amount of tax cuts, indicating that the central government increases tax cuts as election day approaches to provide greater benefits to the electorate. This finding suggests that the central government is highly invested in the outcome of local elections and believes that it can claim credit among voters who benefit from these tax cuts.\u003c/p\u003e \u003cp\u003eIn contrast, when the central government makes tax cut decisions, the electoral competition hypothesis is not supported. This is because the central government cannot tailor tax cuts to individual localities, limiting its ability to respond to local electoral competition. This constraint highlights a fundamental limitation of centralized policymaking. Even if the central government were able to customize tax policies for each locality, such decisions would likely face significant opposition from regions that benefit less, as they may perceive the policy as a violation of equity principles. Ironically, however, this limitation mitigates the political opportunism associated with electoral competition in the case we studied.\u003c/p\u003e \u003cp\u003eTable\u0026nbsp;\u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e3\u003c/span\u003e presents the results for cases in which local governments make tax cut decisions for their own localities. As in previous models, all specifications include locality and year fixed effects to account for heterogeneity across localities and over time. Focusing on the first two columns, we find that neither the political business cycle hypothesis nor the electoral competition hypothesis is supported. That is, when local governments implement tax cuts for their own localities, political opportunism is not clearly observed, assuming that political opportunism is defined as an increase in the amount of tax cuts associated with the election cycle and electoral competition. One possible explanation is that local politicians may perceive tax cuts as a threat to mid- to long-term fiscal capacity, particularly if they anticipate being re-elected.\u003c/p\u003e \u003cp\u003eIn Column 3, we report the results including the interaction term between the year in the election cycle and electoral competition level. In this case, we find that the interaction term is statistically significant, suggesting heterogeneous behavior among local policymakers across localities. Specifically, the significant coefficient of the interaction term indicates that local policymakers facing intense electoral competition implement significantly larger tax cuts as election day approaches compared to their counterparts in less competitive districts. Moreover, the coefficient is not only statistically but also substantively significant, as we will explain below.\u003c/p\u003e \u003cp\u003eFigure 2 presents a graphical representation of the estimates from Column 3 of Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e2\u003c/span\u003e and Table\u0026nbsp;\u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e3\u003c/span\u003e, highlighting the theoretical claim. Figure\u0026nbsp;2.1 is constructed using the coefficients from Column 3 of Table\u0026nbsp;\u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e2\u003c/span\u003e, while Fig.\u0026nbsp;2.2 is based on the coefficients from Column 3 of Table\u0026nbsp;\u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e3\u003c/span\u003e. The values in the figure were calculated directly from the estimated coefficients. Specifically, we set covariates at their mean values, computed the product of the coefficients and their corresponding values, and summed these quantities. We then added this computed value to those of different configurations of the key variables (i.e., election cycle, electoral competition, and their interaction) (e.g., Krause et al. \u003cspan citationid=\"CR19\" class=\"CitationRef\"\u003e2006\u003c/span\u003e). In the figure, \u0026ldquo;high level of electoral competition\u0026rdquo; and \u0026ldquo;low level of electoral competition\u0026rdquo; correspond to values that are one standard deviation above and below the mean, respectively. The election cycle is set to either 1 or 4 to visualize how the amount of tax cuts changes as election day approaches.\u003c/p\u003e \u003cp\u003eFigure 2 closely aligns with the theoretical expectations illustrated in Fig.\u0026nbsp;1, providing empirical support for our hypotheses. In Fig.\u0026nbsp;2.1, which represents cases where the central government makes tax cut decisions, we observe support for the political business cycle hypothesis. The amount of tax cuts increases as election day approaches, and this pattern does not differ significantly between districts with high and low electoral competition. In contrast, Fig.\u0026nbsp;2.2, which represents cases where local governments make tax cut decisions, shows substantial variation across districts. Specifically, in districts with high electoral competition, tax cuts increase significantly as election day approaches, whereas this pattern is not observed in districts with low electoral competition. Notably, in districts with low electoral competition, the amount of tax cuts appears to \u003cem\u003edecrease\u003c/em\u003e as election day nears. However, we believe this pattern is an artifact of the linear assumption imposed on the regression model, rather than an actual strategic behavior by local policymakers.\u003c/p\u003e"},{"header":"CONCLUSION \u0026 DISCUSSION","content":"\u003cp\u003eThis study examines how political opportunism in local governments varies depending on whether fiscal decisions are controlled by the central government or left to local discretion. Specifically, we propose two theoretical mechanisms that may drive governments to engage in political opportunism\u0026mdash;the political business cycle hypothesis and the electoral competition hypothesis\u0026mdash;and test these hypotheses in the context of government tax cut decisions. Using a unique institutional setting in South Korea, where both central and local governments have the authority to implement tax cuts, we analyze how political opportunism manifests differently depending on which level of government makes fiscal decisions. Our findings provide key insights into the strategic behavior of policymakers and the broader implications of fiscal decentralization.\u003c/p\u003e\n\u003cp\u003eOur empirical results show strong support for the political business cycle hypothesis when tax cuts are determined by the central government. Specifically, tax cuts increase as election day approaches, suggesting that the central government strategically times fiscal benefits to influence electoral outcomes. However, electoral competition does not significantly influence central government tax cut decisions, likely due to the uniform nature of national tax policies, which prevent the central government from tailoring tax cuts to specific localities.\u003c/p\u003e\n\u003cp\u003eIn contrast, when local governments make tax cut decisions, neither the political business cycle nor electoral competition hypothesis is supported in isolation. Local policymakers, who directly bear the fiscal consequences of tax cuts, may refrain from excessive tax reductions due to concerns about long-term financial sustainability. However, the interaction between the election cycle and electoral competition is statistically significant, indicating that local governments in electorally competitive districts are more likely to increase tax cuts as elections approach, while those in less competitive districts do not exhibit this pattern. This suggests that political opportunism at the local level is contingent on electoral incentives and is not uniformly present across all localities.\u003c/p\u003e\n\u003cp\u003eThese findings contribute to the broader debate on the advantages and risks of fiscal decentralization. While decentralization is often praised for fostering political accountability and responsiveness, our results suggest that its effect on political opportunism is conditional on electoral dynamics. On the one hand, local policymakers who are directly accountable for fiscal decisions may face constraints that limit excessive tax cuts, particularly when long-term fiscal sustainability is a concern. On the other hand, in highly competitive districts, electoral incentives may intensify strategic tax cuts, demonstrating that local fiscal autonomy does not uniformly constrain political opportunism.\u003c/p\u003e\n\u003cp\u003eFurthermore, our findings highlight an important trade-off in multilevel governance. Centralized fiscal policies ensure equity across regions but limit local responsiveness to regional economic conditions. In contrast, local fiscal autonomy allows for greater adaptability but may introduce electoral incentives that influence tax policy decisions in competitive districts. This suggests that the optimal balance between centralization and decentralization depends on the institutional safeguards that regulate fiscal decision-making and prevent excessive political manipulation.\u003c/p\u003e\n\u003cp\u003eOur study raises several questions for future research. First, while we focus on tax cuts as a measure of political opportunism, future studies could explore other fiscal instruments, such as targeted spending increases or public-sector hiring patterns, to provide a more comprehensive picture of pre-election fiscal strategies. Second, the effectiveness of institutional constraints on political opportunism\u0026mdash;such as balanced budget rules or independent fiscal oversight\u0026mdash;warrants further investigation. Third, cross-national comparisons could help determine whether our findings generalize beyond South Korea or whether specific institutional features shape the dynamics of tax policy and electoral incentives differently across countries.\u003c/p\u003e\n\u003cp\u003eThis study demonstrates that political business cycles and electoral competition influence tax policy decisions differently at the central and local government levels. While the central government systematically increases tax cuts as elections approach, local governments exhibit heterogeneous patterns, with political opportunism primarily occurring in electorally competitive districts. These findings suggest that local fiscal autonomy can serve as both a constraint and a facilitator of political opportunism, depending on the electoral context and institutional constraints. Ultimately, our findings underscore the importance of institutional design in shaping political incentives. Policymakers must carefully consider how fiscal authority is distributed across government levels to minimize electoral distortions while ensuring efficient and responsive public finance management.\u003c/p\u003e"},{"header":"Declarations","content":"\u003ch2\u003eFUNDING STATEMENT\u003c/h2\u003e \u003cp\u003eThis work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2024S1A3A2A07046094).\u003c/p\u003e\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\u003cp\u003eS.H. wrote the main manuscript text and S.J. collected data and prepared figures and tables. All authors reviewed the manuscript.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n \u003cli\u003eAidt, T. S., \u0026amp; Dutta, J. (2007). Policy myopia and economic growth. \u003cem\u003eEuropean Journal of Political Economy\u003c/em\u003e, \u003cem\u003e23\u003c/em\u003e(3), 734-753.\u003c/li\u003e\n \u003cli\u003eAidt, T. S., Veiga, F. 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China\u0026apos;s local political budget cycles. \u003cem\u003eAmerican Journal of Political Science\u003c/em\u003e, \u003cem\u003e53\u003c/em\u003e(3), 621-632.\u003c/li\u003e\n \u003cli\u003eOulasvirta, L., \u0026amp; Turala, M. (2009). Financial autonomy and consistency of central government policy towards local governments. \u003cem\u003eInternational Review of Administrative Sciences\u003c/em\u003e, \u003cem\u003e75\u003c/em\u003e(2), 311-332.\u003c/li\u003e\n \u003cli\u003ePicazo-Tadeo, A. J., Gonz\u0026aacute;lez-G\u0026oacute;mez, F., \u0026amp; Su\u0026aacute;rez-Varela, M. (2020). Electoral opportunism and water pricing with incomplete transfer of control rights. \u003cem\u003eLocal Government Studies\u003c/em\u003e, \u003cem\u003e46\u003c/em\u003e(6), 1015-1038.\u003c/li\u003e\n \u003cli\u003ePierskalla, J. H., \u0026amp; Sacks, A. (2020). Personnel politics: Elections, clientelistic competition and teacher hiring in indonesia. \u003cem\u003eBritish Journal of Political Science\u003c/em\u003e, \u003cem\u003e50\u003c/em\u003e(4), 1283-1305.\u003c/li\u003e\n \u003cli\u003ePrichard, W. (2018). Electoral competitiveness, tax bargaining and political incentives in developing countries: Evidence from political budget cycles affecting taxation. \u003cem\u003eBritish Journal of Political Science\u003c/em\u003e, \u003cem\u003e48\u003c/em\u003e(2), 427-457.\u003c/li\u003e\n \u003cli\u003eQiao, M., Ding, S., \u0026amp; Liu, Y. (2019). Fiscal decentralization and government size: The role of democracy. \u003cem\u003eEuropean Journal of Political Economy\u003c/em\u003e, \u003cem\u003e59\u003c/em\u003e, 316-330.\u003c/li\u003e\n \u003cli\u003eRodden, J. (2005). \u003cem\u003eHamilton\u0026rsquo;s Paradox: Promise and Perils of Fiscal Federalism\u003c/em\u003e. New York: Cambridge University Press\u003c/li\u003e\n \u003cli\u003eRossel Flores, L., Huysmans, M., \u0026amp; Ferwerda, J. (2024). The political business cycle of tax reforms. \u003cem\u003ePublic Choice\u003c/em\u003e, \u003cem\u003e200\u003c/em\u003e(1), 65-88.\u003c/li\u003e\n \u003cli\u003eSchneider, C. J. (2010). Fighting with one hand tied behind the back: political budget cycles in the West German states. \u003cem\u003ePublic Choice\u003c/em\u003e, \u003cem\u003e142\u003c/em\u003e, 125-150.\u003c/li\u003e\n \u003cli\u003eSheffer, L., Loewen, P. J., \u0026amp; Lucas, J. (2024). Long‐term policymaking and politicians\u0026apos; beliefs about voters: Evidence from a 3‐year panel study of politicians. \u003cem\u003eGovernance\u003c/em\u003e, \u003cem\u003e37\u003c/em\u003e(2), 395-410.\u003c/li\u003e\n \u003cli\u003eSun, S., \u0026amp; Andrews, R. (2023). Intra‐provincial fiscal decentralization, relative wealth, and healthcare efficiency: Empirical evidence from China. \u003cem\u003ePublic Administration\u003c/em\u003e, \u003cem\u003e101\u003c/em\u003e(3), 973-992.\u003c/li\u003e\n \u003cli\u003eVeiga, L. G., \u0026amp; Veiga, F. J. (2007). Political business cycles at the municipal level. \u003cem\u003ePublic Choice\u003c/em\u003e, \u003cem\u003e131\u003c/em\u003e, 45-64.\u003c/li\u003e\n \u003cli\u003eXiong, W., Zhong, N., Wang, F., Zhang, M., \u0026amp; Chen, B. (2022). Political opportunism and transaction costs in contractual choice of public\u0026ndash;private partnerships. \u003cem\u003ePublic Administration\u003c/em\u003e, \u003cem\u003e100\u003c/em\u003e(4), 1125-1144.\u003c/li\u003e\n\u003c/ol\u003e"},{"header":"Tables","content":"\u003cp\u003e\u003cstrong\u003eTABLE 1.\u0026nbsp;\u003c/strong\u003eSummary Statistics\u003c/p\u003e\n\u003ctable border=\"1\" cellspacing=\"0\" cellpadding=\"0\" width=\"747\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eVariable\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003eObs.\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003eMean\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003eStandard Deviation\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eTax Cuts (implemented by the Central Government)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eTax Cuts (implemented by Local Governments)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eElection Cycle (1 to 4)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e2.571\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1.178\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eElectoral Competition\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0.813\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0.168\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eConservative Party\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0.374\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0.484\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eSecond Term or Higher\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0.463\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e0.499\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eAge\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e58.728\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e6.100\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eTotal Expenditure (in millions of KRW)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e776,443\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e558,652\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eSocial Expenditure (as % of total expenditure)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e40.638\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e14.528\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eFiscal Independence (%)\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e18.819\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e10.861\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eRegional GDP (in millions of KRW)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e15.241\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1.130\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd style=\"width: 387px;\"\u003e\n \u003cp\u003eLocal Population (\u003cem\u003ein log\u003c/em\u003e)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e11.820\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 120px;\"\u003e\n \u003cp\u003e1.057\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e\n\u003cp\u003e\u003cstrong\u003e\u0026nbsp;\u003c/strong\u003e\u0026nbsp;\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eTABLE 2.\u0026nbsp;\u003c/strong\u003eWhen the Central Government Makes the Decision\u003c/p\u003e\n\u003ctable border=\"0\" cellspacing=\"0\" cellpadding=\"0\" width=\"621\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd colspan=\"3\" valign=\"top\" style=\"width: 340px;\"\u003e\n \u003cp\u003e\u003cem\u003eDependent variable\u003c/em\u003e:\u003c/p\u003e\n \u003cp\u003eTax Cuts (implemented by the Central Government)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(1)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(2)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(3)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eElection Cycle\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e0.038\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e0.040\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e0.041\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.010)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.011)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.011)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eElectoral Competition\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e0.151\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e0.172\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e0.182\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.125)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.108)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.116)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eElection Cycle \u0026times; Electoral Competition\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e0.054\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.059)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eConservative\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.010\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.006\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.024)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.023)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eSecond Term or Higher\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.023\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.022\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.038)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.037)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eAge\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.001\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.001\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.002)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.002)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eTotal Expenditure\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e0.000\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e0.000\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.000)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.000)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eShare of Social Expenditure\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e0.005\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e0.005\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.004)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.004)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eFiscal Independence\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.016\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.017\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.003)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.003)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eRegional GDP\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.032\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.028\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.153)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.151)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eTotal Local Population (\u003cem\u003ein log\u003c/em\u003e)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.529\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.513\u003csup\u003e*\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.255)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.263)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u003cem\u003eN\u003c/em\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u003cem\u003eR\u003c/em\u003e\u003csup\u003e2\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.851\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.853\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.853\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e\n\u003cp\u003eNote: Standard errors in parentheses, \u003csup\u003e*\u003c/sup\u003e \u003cem\u003ep\u003c/em\u003e \u0026lt; 0.10, \u003csup\u003e**\u003c/sup\u003e \u003cem\u003ep\u003c/em\u003e \u0026lt; 0.05; all models include locality and year fixed effects to account for heterogeneity across localities and over time.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eTABLE 3.\u0026nbsp;\u003c/strong\u003eWhen Local Governments Make the Decision\u003c/p\u003e\n\u003ctable border=\"0\" cellspacing=\"0\" cellpadding=\"0\" width=\"621\"\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd colspan=\"3\" valign=\"top\" style=\"width: 340px;\"\u003e\n \u003cp\u003e\u003cem\u003eDependent variable\u003c/em\u003e:\u003c/p\u003e\n \u003cp\u003eTax Cuts (implemented by Local Governments)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(1)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(2)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(3)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eElection Cycle\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.027\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.005\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.016\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.030)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.035)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.034)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eElectoral Competition\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.071\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.009\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.121\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.220)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.222)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.200)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eElection Cycle \u0026times; Electoral Competition\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.582\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.139)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eConservative\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.093\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.135\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.069)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.069)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eSecond Term or Higher\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.076\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.067\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.054)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.054)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eAge\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.019**\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.018\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.005)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.005)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eTotal Expenditure\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.000\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.000\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.000)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.000)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eShare of Social Expenditure\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.026**\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.025\u003csup\u003e**\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.009)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.009)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eFiscal Independence\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.005\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.001\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.009)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.009)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eRegional GDP\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.004\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.056\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.464)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.458)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003eTotal Local Population (\u003cem\u003ein log\u003c/em\u003e)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e-0.612\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e-0.442\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e\u0026nbsp;\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e(0.581)\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e(0.559)\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u003cem\u003eN\u003c/em\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e1582\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd valign=\"top\" style=\"width: 281px;\"\u003e\n \u003cp\u003e\u003cem\u003eR\u003c/em\u003e\u003csup\u003e2\u003c/sup\u003e\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.386\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 113px;\"\u003e\n \u003cp\u003e0.398\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd valign=\"top\" style=\"width: 114px;\"\u003e\n \u003cp\u003e0.411\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n\u003c/table\u003e\n\u003cp\u003eNote: Standard errors in parentheses, \u003csup\u003e*\u003c/sup\u003e \u003cem\u003ep\u003c/em\u003e \u0026lt; 0.10, \u003csup\u003e**\u003c/sup\u003e \u003cem\u003ep\u003c/em\u003e \u0026lt; 0.05; all models include locality and year fixed effects to account for heterogeneity across localities and over time.\u003c/p\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"","lastPublishedDoi":"10.21203/rs.3.rs-6244409/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6244409/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study examines how political opportunism in local governments varies based on fiscal decision-making authority\u0026mdash;whether controlled by the central government or left to local discretion. We propose two theoretical mechanisms\u0026mdash;the political business cycle hypothesis and the electoral competition hypothesis\u0026mdash;and test them in the context of government tax cuts. Using South Korea\u0026rsquo;s institutional setting, where both central and local governments can implement tax cuts, we analyze how political opportunism differs across governance levels. Our findings show strong support for the political business cycle hypothesis when the central government determines tax cuts, with tax reductions increasing as elections approach. However, electoral competition does not influence central government tax policy, likely due to uniform national policies. In contrast, local governments exhibit heterogeneity\u0026mdash;political opportunism is more pronounced in electorally competitive districts. These results suggest that local fiscal autonomy can either constrain or amplify political opportunism, depending on electoral incentives.\u003c/p\u003e","manuscriptTitle":"Strategic Tax Cuts: How Central and Local Governments Respond to Political Incentives","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-04-01 11:21:35","doi":"10.21203/rs.3.rs-6244409/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"425333d0-781e-41f8-8df4-d0f88d0f7275","owner":[],"postedDate":"April 1st, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2025-05-29T17:23:39+00:00","versionOfRecord":[],"versionCreatedAt":"2025-04-01 11:21:35","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-6244409","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-6244409","identity":"rs-6244409","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}