Political budget cycles, irregularities, and adverse opinions on municipal accounts in the state of Rio de Janeiro

Abstract

Political Budget Cycle theory suggests that, in election years, incumbents tend to increase public spending, especially on public works, in an effort to remain in power. This behavior may cause fiscal distortions and increase the incidence of irregularities in public accounts, thereby requiring greater oversight by Courts of Accounts. In this context, the objective of this study is to identify, in light of political budget cycles, the factors that explain the increase in irregularities and the likelihood of adverse preliminary opinions issued by the Rio de Janeiro State Court of Accounts (TCE-RJ). The sample covers the period from 2014 to 2022 and includes two regression models: ordinary least squares (OLS) and logit, with variables such as election year, expenditures on public works and personnel, reelection, and party ideology. The results indicate that, in election years, there is a higher number of irregularities identified in audit opinions, as well as an increased likelihood of adverse rulings on municipal accounts. The analysis also shows that increases in investment and personnel expenditures during this period are directly associated with the occurrence of irregularities, including those classified as “constitutional matters” and related to the “Fiscal Responsibility Law (FRL).” A complementary regression focused only on theory-related irregularities reinforced the robustness of the findings. It is concluded that the adverse preliminary opinion issued by the TCE-RJ reflect not only legal noncompliance, but also a systemic pattern influenced by the electoral cycle.