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Political Budget Cycles in the European Union and the Impact of Political Pressures: A dynamic panel regression analysis

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  • Georgios Efthyvoulou

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

This paper investigates the presence of political budget cycles (PBCs) in the European Union using a data set encompassing all 27 current member states over the period 1997-2008, and analyzes what may explain their variability across countries and over time. Conditioning on partisan considerations and several socio-economic variables, we find evidence in favor of a systematic electoral cycle in fiscal policy (i.e. spending and budget deficits are raised in election years). Furthermore, we find that PBCs are much larger in the Eurozone countries than in the countries that have not yet adopted the euro. Finally, we discuss an interesting area for future research, namely, fiscal policy manipulations are influenced by the information available to the market before elections. Specifically, we show that the size of PBCs is inversely proportional to the relative weight voters assign to non-economic issues prior to an election and positively correlated with the uncertainty over the electoral outcome. Once we account for these two features, the aforementioned differences between the Eurozone and the non-Eurozone countries seem to disappear.

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Paper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1002.

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Date of creation: Jan 2010
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Handle: RePEc:bbk:bbkefp:1002

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Cited by:
  1. Sturm, Jan-Egbert & Haan, Jakob de & Jong-A-Pin, Richard, 2012. "Using real-time data to test for political budget cycles," Research Report 12010-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  2. Merola, Rossana & Pérez, Javier J., 2014. "Fiscal Forecast Errors: Governments Versus Independent Agencies?," Papers RB2014/1/1, Economic and Social Research Institute (ESRI).
  3. Enkelmann, Sören & Leibrecht, Markus, 2013. "Political expenditure cycles and election outcomes: Evidence from disaggregation of public expenditures by economic functions," Economics Letters, Elsevier, vol. 121(1), pages 128-132.
  4. Mario Mechtel & Niklas Potrafke, 2013. "Electoral cycles in active labor market policies," Public Choice, Springer, vol. 156(1), pages 181-194, July.
  5. Solomos, Dionysios & Papageorgiou, Theofanis & Koumparoulis, Dimitrios, 2012. "Financial Sector and Business Cycles Determinants in the EMU context: An Empirical Approach (1996-2011)," MPRA Paper 43858, University Library of Munich, Germany.
  6. Spyros Skouras & Nicos Christodoulakis, 2011. "Electoral Misgovernance Cycles: Evidence from wildfires and tax evasion in Greece and elsewhere," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 47, Hellenic Observatory, LSE.
  7. Niklas Potrafke, 2014. "The Evidence on Globalization," CESifo Working Paper Series 4708, CESifo Group Munich.
  8. Toke Aidt & Graham Mooney, 2014. "Voting Suffrage and the Political Budget Cycle: Evidence from the London Metropolitan Boroughs 1902-1937," CESifo Working Paper Series 4614, CESifo Group Munich.
  9. Jeroen Klomp & Jakob Haan, 2013. "Political budget cycles and election outcomes," Public Choice, Springer, vol. 157(1), pages 245-267, October.
  10. Maria Teresa Balaguer-Coll & María Isabel Brun-Martos & Anabel Forte & Emili Tortosa-Ausina, 2014. "Determinants of local governments'­ reelection: New evidence based on a Bayesian approach," Working Papers 2014/06, Economics Department, Universitat Jaume I, Castellón (Spain).
  11. Toke Aidt & Graham Mooney, 2014. "Voter suffrage and the political budget cycle: evidence from the London Metropolitan Boroughs 1902-1937," Cambridge Working Papers in Economics 1401, Faculty of Economics, University of Cambridge.
  12. Jakob Haan & Jeroen Klomp, 2013. "Conditional political budget cycles: a review of recent evidence," Public Choice, Springer, vol. 157(3), pages 387-410, December.
  13. Vincenzo Bove & Georgios Efthyvoulou & Antonio Navas, 2013. "Political Cycles in Public Expenditure: Butter vs Guns," Working Papers 2013016, The University of Sheffield, Department of Economics.
  14. Efthyvoulou, Georgios, 2011. "Political cycles under external economic constraints: Evidence from Cyprus," Journal of Economics and Business, Elsevier, vol. 63(6), pages 638-662.

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