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The Stability and Growth Pact: A European Answer to the Political Budget Cycle?

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Author Info
Thierry Warin ()
Kenneth Donahue

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Abstract

The existing literature on political budget cycles looks at the temptation for incumbent governments to run a greater deficit before an election by considering the characteristics of the incumbent. We propose here to look at the signals the incumbent receives from the voters. For this purpose, we consider the votes from the previous national elections and see whether they may influence the incumbent government to run a sound fiscal policy or an expansionary fiscal policy. However, since 1993 Europe has been equipped with two fiscal rules: a deficit and a debt ceiling. In this context, can we find evidence of a “political budget cycle” before 1993, and did the fiscal rules prevent the existence of a “political budget cycle” afterwards? To address these questions, we use a cross-sectional time series analysis of European countries from 1979 to 2005.

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Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0606.

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Length: 24 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:mdl:mdlpap:0606

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Related research
Keywords: Stability and Growth Pact; Political Business Cycle; Political budget Cycle; Partisan Theory;

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Find related papers by JEL classification:
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
P43 - Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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    Other versions:
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