Hit from abroad: Party dominance and the fiscal response to external economic shocks

Do politicians from dominant parties choose different fiscal policies in response to an external economic shock than politicians from competitive parties? This paper argues that politicians from dominant parties might adopt different fiscal policies than politicians from competitive parties in response to an external economic shock. Politicians from dominant parties might enjoy a political advantage that allows them to underinvest in areas with low political gains compared to politicians from competitive parties and divert the money to policy areas more politically profitable. I examine my theoretical prediction using a panel data set of Mexican governors from 1995 to 2010.