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Volume 4, Issue 4, April – 2019 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Opportunistic Political Budget Cycle and


Re-Election Incumbent
Darmawati1, Ratna Ayu Damayanti2, Gagaring Pagalung3, Mediaty4
Accounting Department, Faculty of Economics and Business
Hasanuddin University, Indonesia

Abstract:- This study aims to prove the existence of an regional head will re-nominate for the second period. The
opportunistic political budget cycle that is influenced by incumbent candidates will maximize their efforts to bounce
Regional Original Revenue (ROR), General Allocation the votes from the reins of power and leadership. The heads
Funds (GAF), and Remaining More Budget Calculation of the incumbent area tend to politicize the budget that we
(RMBC) in regional heads election in Indonesia and are familiar with the term "Political Budget Cycle"
checked whether regional heads who adopt the policy
had a high opportunity of being re-elected or not. The The Political Budget Cycle (PBC) model is an
research used data during two years namely 2016 and economic cycle caused by political motivation, it occurs
2017 elections of 171 provinces/regencies/cities regional because the existence of temporary information asymmetry
governments in Indonesia who participated in the related to the competency level of politicians in explaining
regional heads election simultaneously in 2018. Data the electoral cycle in fiscal policy (Klein, 2010). The
analysis used multiple linear regressions for direct signaling model is the driving force behind Political Budget
relationships among variables. The Opportunistic Cycle as has been investigated by Rogoff and Sibert
Political Budget Cycle (OPBC) influenced the results of (1988); Persson and Tabellini (2002); Shi and Vensson
the re-election while OPBC influenced by GAF and (2006).
RMBC positively and significantly but the ROR did not
have a significant effect. It indicated that changed the This article focuses on the phenomenon of the
number of ROR, GAF, and RMBC affected the presence of opportunistic political budget cycles through
determination of education budget, health, fiscal policies related to ROR, GAF, and RMBC that
infrastructure, social assistance, and grant spending. determined by local governments (executive and
This article is important because it is the first research legislative) before the general election and examines
that discussed the relevance of the cycle of the political whether the existence of the political budget cycle provides
budget to election by considering regional revenues. greater opportunities for the incumbent to be re-elected in
The results of the study can be input in determining the second period or not.
policy and supervision of allocation of expenditure,
besides that it can be used as a basis for consideration Political budget cycles are generally understood to be
for voters before deciding whether to give a second economic cycles caused by political motivation, and come
chance to Incumbent or not. in various forms: through increased public spending,
increased employment, tax reduction, or even through
Keywords:- Opportunistic Political Budget Cycle, spending moving from less visible public services to more
Incumbent, Re-Election, ROR, GAF, RMBC. visible ones (Drazen and Eslava, 2010; Eslava, 2005).
Opportunistic Political Budget Cycle is significantly
I. INTRODUCTION stronger if the incumbents follow the general elections
again (Aidt et al. 2011).
Policies on the preparation of regional income and
expenditure budgets are the main factors that must be The heads of incumbent region certainly have
considered by local governments because it will be a opportunity to make a political budget cycle by utilizing
reference for determining people's welfare because the various expenditure posts on APBD for personal gain; they
budget serves as a tool of accountability (financial will try to promote greater economical expansion ahead of
accountability) and economic policy. The budget serves to the election to increase the chances of re-election. Utilizing
realize economic growth, stability and equal distribution of abuse of authority for political purposes related to the
people's income but this function will change when the preparation of the composition of the public budget
regional heads will follow the fight in the second-period (Hessami, 2014).
election.
The behavior of budgeting that is linked to regional
The involvement of regional heads in the heads election is interesting to study or to investigate
implementation of the budget strengthens at the time of the because of this process; there are still many irregularities
regional head elections of Harsasto (2014). It can be seen that occur. Such as proposing a budget for the benefit of
from the many phenomenons of money politics that occur politicians, including the budget so that the project fee is
in owners (Ritonga and Alam, 2010) and the alleged rewarded (Jumaidi, 2014). This is an arena for politics to
deviation of the Regional Budget will increase when the commit corruption (political corruption) due to misuse of

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Volume 4, Issue 4, April – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
funds for personal and group interests (Martinez et al., Previous research was conducted by Parwati, et Al.
2004). There were 28 cases of arrest cases carried out by (2015) examined the opportunistic behavior of budgeting
Corruption Eradication Commission (Indonesian for 9 regencies and cities in Bali Province. The results
abbreviation KPK) involving regional heads; there were 29 prove that ROR, GAF, and RMBC have a significant effect
active regional heads and 2 formers in 2018. (www.kpk. on opportunistic behavior in APBD compilation.
.go.id, 2018). Chortareas, et al., (2016) examined the possibility of the
presence of opportunistic political budget cycles due to the
This action is related to the presence of moral hazard existence of Greek city fiscal policy and examined how
in political competition (Shi and Svensson, 2006). politicians motivate voters through budget policies to
Politicians can behave opportunistically in determining the influence the prospect of the re-election of the mayor. The
amount of budget proposed in Regional Expenditure use of a dataset of 109 cities from 1985 to 2004. The results
Budget (Indonesian abbreviation APBD) and fiscal policy. of the study prove that opportunistic policies influence the
Generally, politicians will use the fiscal policies that they prospect of incumbent re-election.
have to encourage re-election in the election (Aidt&
Mooney, 2014) through political budget cycle policies. The In contrast to previous studies, we used a two-year
results of Drazen and Eslava study (2006, 2010) which dataset before 2016 and 2017 elections, of 171 regions in
examined the relationship between the opportunistic Indonesia that took part in 2018 general election, but only
expenditure of local governments and election results were 129 regions met the criteria. This study consisted of three
found by empirical evidence that the incumbent used public stages, the first to determine the opportunistic political
expenditure to attract votes. Whereas the results of the budget cycle by calculating APBD spread one year earlier
study by Syahrir et al. (2013) found that PBC significantly minus APBD two years earlier (APBDt-1 –APBDt-2) in
affected districts in Indonesia when direct elections were education, health, public works (infrastructure), social
held, while through cases were no effect. assistance, and grants. The second, to look for the effect of
ROR, GAF, and RMBC acceptance on PBCO. The third, to
The existence of information asymmetry between the look for the influence of PBCO on the probability of
executive and the legislature causes a gap in behavioral incumbent re-election. The results of the study were
deviations that violate the rules and regulations. The expected to be input in determining policies and
implementation of deserialization was made by regional supervisions of the allocation of APBD, as well as being a
autonomy autonomously regulating its finances by basis for consideration for voters before deciding whether
maximizing and exploring its own financial potential with to give a second chance to the incumbent or not.
two main components, namely Local Revenue (ROR) and
Balancing Funds. Regional original income is a source of II. LITERATURE REVIEW
income derived from the economical activities of the region
itself, for example from local taxes, regional levies, and A. Opportunistic Political Budget Cycle
other legitimate income. ROR is one of the pillars to The Political Budget Cycle arises because the
measure the extent of independence of a region. Therefore, incumbents are opportunistically motivated, they try to
when determining the legislative ROR target, it will improve the economical welfare of voters before the
encourage the executive to always raise the target in order election (Franzese and Jusko, 2006) this is evidence that
to increase the allocation of programs to support their shows that economic condition influence support for local
interests. Whereas the prospective of heads of the governments. Opportunistic behavior is the act of someone
incumbent area carries out opportunistic behavior in who deviates from existing regulations to fulfill all his
determining the income budget target in order to allocate desires (Havid, 2014 in Megasari,2015) The political
the budget for their interests. budget cycle model is theoretically a container that can be
used by incumbent regional governments to smooth
To compensate for the inequality of acceptance of the opportunistic intentions to secure re-election by
ROR optimizes the central government who made a policy maximizing the expected votes in the next election
to allocate GAF and Special Allocation Funds to be (Nordhaus 1975). The incumbent regional governments,
transferred to the regions. At the time other problems regardless of ideological orientation, adopted expansive
existed the determination of APBD Amendment did not fiscal policies at the end of their tenure to stimulate
consider the time and the maturity of implementation of the economic activity (Potrafke 2012)).
activities. It will make the budget to be ineffective or even
unrealized that will result in a lot of More Budget According to Alesina and Roubini (1992), the
Calculation (RMBC). Even though the budgeted funds political budget cycle is divided into three categories, they
should have been used to improve the welfare of the are:
community, as a result of the large number of RMBC, it a). The Opportunistic Model (Election), this model of
will affect the budget allocation for the next period, politicians strives to maximize popularity and opportunity
because the RMBC will be used to balance the budget to to be re-elected through expansionary policies during the
cover financing expenses. election period and usually will be followed by contraction
policies after elections (Noudhaus, 1975; Lindback, 1976).
b). The Partisan Model, this model of the presence of
preferences causes different policies to be made by the

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Volume 4, Issue 4, April – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
preferences of voters, the existence (right to) takes they want. Of course, this will provide a great opportunity
precedence and it is over than others. It motivates the for local governments to carry out an opportunistic political
emergence of various parties that represent certain budget cycle, especially ahead of the second-period general
preferences during elections (Hibbs, 1997). elections.
c). The Rational Model, this model is a combination of the
concept of rational expectations both opportunistic and H3: There is a significant influence between GAF and the
partisan models, where voters can learn from previous opportunistic political budget cycle.
elections and observe the performance of the government, H4: There is significant influence between GAF and re-
then renew their beliefs about incumbent capability in the election through the opportunistic political budget cycle
next period (Aidt, Vega, and Vega, 2011; Rogoff, 1990; variable
Alesina, 1987).
C. Remaining More Budget Calculation
B. Regional Revenue and Expenditure Budget. RMBC is the difference between the realization of
The law No. 17 of 2013 on concerning to State budget revenues and expenditures for one period. Include
Finance in article (1) point 8 states that the Regional all financial transaction activities in the form of receipts,
Budget is an annual financial plan of the regional financings, expenses and remaining funds for activities that
governments that must be approved by the Regional People have been realized. The budget deficit reduces the chances
Representative Assembly (DPRD) which is broken down of the incumbent being re-elected because voters punish
based on organizational units, functions, programs, and politicians who create deficits (Brender and Drazen, 2008;
types of expenditure. It becomes the basis of regional Drazen and Eslava, 2010). This happens because regional
financial management for one fiscal year (January 1, revenues are used to finance all of their obligations in
December 31 of the current year). The APBD contains all running the governments, including being used to improve
the revenue and expenditure plans that will be implemented regional infrastructure because direct results can be seen by
by the regional governments in implementing fiscal the public as voters.
decentralization.
H5: There is significant influence between RMBC and the
III. DEVELOPMENT OF HYPOTHESES opportunistic political budget cycle.
H6: There is significant influence between RMBC and re-
A. Regional Original Revenue election through the opportunistic political budget cycle
Regional Original Revenue (ROR) is a source of variable
regional revenue that must always be explored to fund the
implementation of regional autonomy activities; the D. Political Budget Cycle and Prospect of Re-election
regional governments are given the authority to explore the Opportunistic PBC / election can influence budget
potential of the regions. Previous researches have been policies at the local governments’ level, especially higher
carried out by Abdullah (2012); Maryono (2013); Sulastro, pre-election expenditures. The results of the study of
et al (2014) prove that income changes affect the Chortareas, et al (2016) show empirical evidence in
opportunistic behavior of budget compilers. Research municipalities in Greece regarding the pattern of OPBC on
conducted by Aidt and Mooney (2014) research objects budget balances, total expenditure, investment, and loan
distinguish voters from taxpayer groups and the general receipts. This OPBC pattern appears regardless of whether
public, the results prove that the political budget cycle the mayor is running for re-election or not.
appears as a reduction in current income and in increasing
income in the election year in taxpayers while the general Balaguer-Coll et al. (2015), using the Bayesian
public income side, there is no evidence of a political Technique in Spain proves that increasing public
budget cycle. expenditure positively influences the probability of the
inclusion of incumbents. Whereas Aidt et al. (2011) in the
H1: There is significant influence between the ROR and the Portuguese city saw the linkage between incumbent
opportunistic political budget cycle margins and opportunistic distortion in financial
H2: There is significant influence between ROR and re- management before the election, there was greater fiscal
election through the opportunistic political budget cycle manipulation before the election when incumbents faced
variable stiff competition and increased expenditure during
elections positively affected the incumbent margin of
B. General Allocation Fund victory. Results of Drazen and Eslava research (2010) in
The General Allocation Fund (GAF) is another Colombian municipalities show that high deficits
funding source obtained by the regional governments negatively affect the share of votes received by incumbents,
through transfer from the central government to overcome but an increase in capital expenditure has a positive effect.
economic inequality because the regional governments
have a low ROR. It uses quite flexible and not tied to a H7: There is significant influence between the
particular program (Maryono, 2013) so that local Opportunistic political budget cycle and re-election
governments are free to determine what type of shopping

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IV. RESEARCH METHODS ӒHealth : Healtht-2- Healtht-1
ӒInfrast : Infrastt-2- Infrastt-1
This study used a quantitative approach to the nature of ӒSA :Social Assistencet-2-Social Assistencet-1
correlational research. It aimed to determine the influence of ӒGrant : Grantt-2- Grantt-1
ROR, GAF, and RMBC on re-election through various
opportunistic political budget cycles. Testing the direct The second stage
relationship using multiple linear regression analysis and Y1 = α0 + α 1X1 + α2X2 + α3X3+ e..(2)
indirect relationships used the path analysis model. Explanation:
Y1 : opportunistic Political Budget Cycle
The analysis unit used the local governments. The α0 : Konstanta
numbers of population were all regional governments in α1-α3 : Koefisien arah regresi
Indonesia. The numbers of sample collection based on X1 : ROR
criteria (purposive sampling), namely the regional X2 : GAF
governments that conducted the election in 2018, issued X3 : RMBC
financial statements for 2016-2017 and had all the data e : confounding variable (error)
needed and it was a cross-section data.
The third stage
Testing the hypothesis used regression analysis that Y2 = β0 + β1Y1 + e…..(3)
done in three stages. The first stage determined the
distribution of OPBC, the second stage tested the relationship Explanation:
between independent variables to intervening variables with Y2 : Re-election
multiple regression. The third stage examined the β0 : Konstanta
relationship of the intervening variable to the dependent β1 : Koefisien arah regresi
variable. The models developed for this analysis are as Y1 : Opportunistic
follows. Political Budget Cycle
e : conpounding variable (error)
The first stage
In this stage determined the cycle of opportunistic The population was a collection of objects studied; the
political budgeting, developed from the research of Parwati et object of this research is the financial statements of local
al (2015), calculating the distribution of budget allocations governments. The population in this study was the provincial,
available in APBD two years before the election. The fields regency and municipal regional governments that take part in
observed were spending on education, health, public works the 2018 election:
(infrastructure), social assistance, and grants. The
opportunistic behavior could be observed by decreasing the No. Category Amount
allocation of education, health, increasing infrastructure, 1. Province 17
grants, and spending on social assistance (Abdullah, 2012 2. District 116
and Parwatiet. Al. 2015). 3. City 38
OPBC = ӒEduc+ ӒHealth + ӒInfrastr + ӒSA + ӒGrant Amount 171
…..(1) Table 1:- Total population
Source: kpu.go.id
Explanation:
OPBC : opportunistic Political Budget Cycle The conceptual variables studied are as follows:
ӒEducation : Edut-2- Edut-1

Fig 1:- Conceptual Model Design

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V. RESULTS ANALYSIS OF RELATIONSHIPS BETWEEN VARIABLES

A. Effect of ROR (X1), GAF (X2), and RMBC (X3) On PBCO (Y1)

Independent Variables Coefficient t Sig. Information


Konstanta -3.744E+10
ROR (X1) 0.202 0.810 0.420 Not significant

GAF (X2) 0.414 3.795 0.000 Significant

RMBC (X3) 0.463 3.025 0.003 Significant

α = 5% = 0,05
R square = 0,225
Table 2:- Testing of ROR, GAF, and RMBC on PBCO
Source: Processed Primary Data

Table- 2 Showing the determination coefficient value of and OPBC was positive. The coefficient value that was
R square in the results of the above test showed a value of positive indicated the direction of the relationship. It means
0.225 or 22.5%. These results indicated that the PBCO that the higher the GAF results in higher OPBC.
variable was influenced by 22.5% by ROR (X1), GAF (X2),
and RMBC (X3). The remaining 77.5% was influenced by The results of the regression analysis for (Hypothesis 5)
other variables outside the independent variables examined in the relationship between RMBC and OPBC had a probability
this study. value of 0.003 (<0.05). This value indicated that the
relationship between RMBC and OPBC had a significant
The results of the regression analysis for (Hypothesis 1) effect. In addition, the coefficient for the RMBC variable was
the relationship between ROR (X1) and OPBC had a 0.463 which indicated that the direction of the relationship
probability value of 0.420 (> 0.05). This value indicated that between RMBC and OPBC was positive. The coefficient
the relationship between ROR (X1) and the political budget value that was positive indicated the direction of the
cycle had no significant effect. relationship. It means that the higher the RMBC the higher
than OPBC.
The results of the regression analysis for (Hypothesis 3)
the relationship between GAF and OPBC had a probability B. The Effect of ROR (X1) Against Re-election (Y2) Through
value of 0,000 (<0.05). This value indicated the relationship OPBC (Y1)
between GAF and OPBC had a significant effect. In addition, For testing (Hypothesis 2), the influence of ROR on Re-
the coefficient for the GAF variable was 0.414, which election through OPBC can be calculated by using the Sobel
indicated that the direction of the relationship between GAF test, as follows.

Direct Effect
Code Variable Variable
Coefficient S.E Sig Info.
Opportunistic
H1 Political Budget LGR 0.202 0.027 0.420 Not Sig.
Cycle
Opportunistic
H2 Re-election Political Budget 0.177 0.000 0,045 Sig.
Cycle
Table 3:- Testing of ROR TO Re-election Interaction through OPBC
Source: Processed Primary Data

Table- 3 showed that the information of the calculation significant effect on Re-election through OPBC. The details
of the single test using data in the table above, the results of the Sobel calculation for this research are as follows.
showed that the calculated T value of 7.481 was greater than
the T table of 1.979 indicating that ROR had a positive and

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𝑆𝑎𝑏 = √𝑏 2 𝑆𝑎2 + 𝑎2 𝑆𝑏 2 + 𝑆𝑎2 𝑆𝑏 2 C. Effect of GAF (X2) on Re-election (Y2) through OPBC
(Y1)
𝑆𝑎𝑏 = √0.000023
For testing (Hypothesis 4), the effect of GAF on re-
𝑆𝑎𝑏 = 0.004779
𝑎×𝑏 election through OPBC can be calculated by using the Sobel
Tcount = test, as follows.
𝑆𝑎𝑏
0.202×0.177
Tcount=
0.004779
0.035754
Tcount= 0.004779
Thitung = 7.481481

Direct Effect
Code Variable Variable
Coefficient S.E Sig Info.
Opportunistic
H3 Political Budget GAF 0.414 0.045 0.000 Sig
Cycle
Opportunistic Political
H4 Re-election 0.177 0.000 0,045 Sig
Budget Cycle
Table 4:- Testing of GAF to re-election interactions through OPBC
Source: Processed Primary Data
0.414×0.177
Table 4 showed the single test calculation using the Thitung = 0.007965
data in the table above, the results obtained that the T-count 0.035754
of 4.489 was greater than the T-table of 1979 shows that Thitung = 0.007965
GAF has a positive and significant effect on re-election Thitung = 4.488889
through OPBC. The details of the Sobel calculation for this Thitung = 4.489
research are as follows:
D. Effect of RMBC (X3) Against Re-election (Y2) Through
𝑆𝑎𝑏 = √𝑏 2 𝑆𝑎2
+ 𝑎2 𝑆𝑏 2 + 𝑆𝑎2 𝑆𝑏 2 PBCO (Y1)
For testing (Hypothesis 6), the influence of the RMBC
𝑆𝑎𝑏 = √0.000063
on the election through PBCO can be calculated by using the
𝑆𝑎𝑏 = 0.007965
𝑎×𝑏 Sobel test, as follows.
Thitung = 𝑆𝑎𝑏

Direct Effect
Code Variable Variable
Coefficient S.E Sig Info.
Opportunistic
H5 Political Budget RMBC 0.463 0.031 0.003 Sig
Cycle
Opportunistic Political
H6 Reelection 0.177 0.000 0,045 Sig
Budget Cycle
Table 5:- RMBC Interaction Testing of Re-election through OPBC

Table 5 showed that the calculation of the single test 𝑆𝑎𝑏 = 0.005487
used data in the table above, the results obtained that the 𝑎×𝑏
Tcount = 𝑆𝑎𝑏
value of T-count was 14,935 greater than the T-table of 1979 0.463×0.177
showed that RMBC had a positive and significant effect on Tcount=
0.005487
0.𝑂81951
re-election through OPBC. The details of the Sobel Tcount = 0.005487
calculation for this research are as follows. Tcount = 14.935484
Tcount = 14.935
𝑆𝑎𝑏 = √𝑏 2 𝑆𝑎2 + 𝑎2 𝑆𝑏 2 + 𝑆𝑎2 𝑆𝑏 2
𝑆𝑎𝑏 = √0.000030

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E. Effect of Opportunistic Political Budget Cycle (Y1) on Re-election (Y2)

Independent Variables Coefficient t Sig. Information


Konstanta 45.858
Opportunistic Political Budget Cycle (Y1) 0.177 2.025 0.045 Significant
α = 5% = 0,05
R square = 0,031
Table 6:- Testing of OPBC relations Re-election
Source: Processed Primary Data

Table- 6 shows the determination coefficient value of R REFERENCES


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