The Incumbent Tax: A Stochastic Assessment of Pre-Election Clientelism and Fiscal Insolvency in Philippine Local Government Units

Abstract

Political budget cycles are well documented in developing democracies, yet the fiscal tail-risk of pre-election spending in decentralized settings remains unquantified. We combine a PSGC-keyed fiscal panel of 1,714 Philippine local government units (LGUs) covering fiscal years 1992–2024 with gubernatorial electoral returns for 82 provinces (1992–2025) and mayoral returns for 146 cities and 1,472 municipalities (2007–2025). Estimating a two-way fixed-effects voter elasticity model with the incumbent's own vote share as the outcome, the regression sample covers 192 province-cycles, 268 city-cycles, and 2,174 municipality-cycles. No sectoral spending category predicts the incumbent's vote share with statistical significance at any level of government. The one variable that reliably predicts electoral outcomes is the effective number of candidates: doubling the number of effective candidates is associated with a vote-share loss of roughly 42 percentage points, and this pattern holds at all three LGU levels. Feeding these elasticities into 10,000-draw Monte Carlo simulations calibrated separately at each level on constant 2018 Philippine pesos, a three-year pre-election spending surge (realized mean 22.5 percent above baseline in each spike year) raises the one-year insolvency probability from 56.8 to 71.8 percent in provinces, from 62.0 to 72.7 percent in cities, and from 62.5 to 72.3 percent in municipalities. Over a ten-year horizon, the surge adds roughly 0.4 to 0.5 additional deficit years and lifts the 95 percent Value-at-Risk of the cumulative deficit-to-income ratio from a baseline range of 0.35 to 0.57 to 0.47 to 0.70. A spending-neutral reallocation scenario produces fiscal outcomes identical to the surge because neither the level nor the composition of spending moves votes. These results support an "incumbent tax" interpretation that generalizes across all three LGU levels: incumbents absorb a consistent fiscal cost for no measurable electoral compensation. We propose pre-election discretionary spending ceilings and mandatory fiscal stress tests.