Tobias Hagen () (Federal University of Applied Administrative Sciences, Germany)
Abstract
Using an unbalanced panel of 24 OECD countries for the period 1986-2005 the paper empirically tests the political budget cycle hypothesis. The econometric approach is based on the equation proposed by BOHN (1998) for testing the sustainability of fiscal policy and system GMM estimators. The empirical results strongly support the hypothesis of smaller primary surpluses (only) in election years. The result found by BRENDER and DRAZEN (2005) that an election effect exists only in new democracies is rejected. However, in contrast to the political budget cycle hypothesis, it is argued that the result may rather be explained by governments’ attempt to avoid intra-governmental conflicts on limited budgetary funds during election years, since this may be interpreted as an adverse signal by the voters. Besides, the results indicate only a temporary effect of the European Monetary Union.
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Article provided by Economics Bulletin in its journal Economics Bulletin.
Volume (Year): 8 (2007) Issue (Month): 8 () Pages: 1-5 Download reference. The following formats are available: HTML,
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Handle: RePEc:ebl:ecbull:v:8:y:2007:i:8:p:1-5
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Find related papers by JEL classification: H6 - Public Economics - - National Budget, Deficit, and Debt E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook