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Are there Political Budget Cycles in the Euro Area?

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Author Info

  • Mark Mink

    (University of Groningen, The Netherlands)

  • Jakob de Haan

    (University of Groningen, The Netherlands, and CESifo, Munich, Germany)

Abstract

This article examines whether there is a political budget cycle (PBC) in countries in the euro area. Using a multivari ate model for 1999–2004 and various election indicators we find strong evidence that, since the start of the Stability and Growth Pact, fiscal policy-makers in the euro area have pursued expansionary policies before elections. In an elec tion year – but not in the year prior to the election – the budget deficit increases. This result is in line with third-generation PBC models, which are based on moral hazard. We also find a significant but small partisan effect on fiscal policy outcomes.

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File URL: http://eup.sagepub.com/content/7/2/191.abstract
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Bibliographic Info

Article provided by in its journal European Union Politics.

Volume (Year): 7 (2006)
Issue (Month): 2 (June)
Pages: 191-211

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Handle: RePEc:sae:eeupol:v:7:y:2006:i:2:p:191-211

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Related research

Keywords: fiscal policy; political budget cycle; Stability and Growth Pact;

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References

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  1. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
  2. Jakob de Haan & Helge Berger & David-Jan Jansen, 2004. "Why has the Stability and Growth Pact Failed?," International Finance, Wiley Blackwell, vol. 7(2), pages 235-260, 07.
  3. Andrikopoulos, Andreas & Loizides, Ioannis & Prodromidis, Kyprianos, 2004. "Fiscal policy and political business cycles in the EU," European Journal of Political Economy, Elsevier, vol. 20(1), pages 125-152, March.
  4. James E. Alt & David Dreyer Lassen, 2005. "The Political Budget Cycle is Where You Can't See It: Transparency and Fiscal Manipulation," EPRU Working Paper Series 05-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  5. J. de Haan & H. Berger & D. Jansen, 2003. "The end of the stability and growth pact?," WO Research Memoranda (discontinued) 748, Netherlands Central Bank, Research Department.
  6. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  7. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  8. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
  9. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  10. Shi, Min & Svensson, Jakob, 2002. "Conditional Political Budget Cycles," CEPR Discussion Papers 3352, C.E.P.R. Discussion Papers.
  11. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  12. Volkerink, Bjorn & De Haan, Jakob, 2001. " Fragmented Government Effects on Fiscal Policy: New Evidence," Public Choice, Springer, vol. 109(3-4), pages 221-42, December.
  13. Marco Buti & Paul van den Noord, 2003. "Discretionary Fiscal Policy and Elections: The Experience of the Early Years of EMU," OECD Economics Department Working Papers 351, OECD Publishing.
  14. Schuknecht, Ludger, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series 0421, European Central Bank.
  15. Tujula, Mika & Wolswijk, Guido, 2004. "What determines fiscal balances? An empirical investigation in determinants of changes in OECD budget balances," Working Paper Series 0422, European Central Bank.
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