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The Present Sovereign Debt Crisis Of The Euro Zone Peripheral Countries: A Case Of Non-Mature Democracies And Less Developed Economies

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  • Abel L. Costa Fernandes

    (Universidade do Porto - Faculdade de Economia)

  • Paulo R. Mota

    (Universidade do Porto - Faculdade de Economia)

Abstract

The eurozone faces a profound sovereign debt crisis threatening the very existence of the euro. As a result, the recovery of the world economy has become more uncertain. Therefore, the study of the foundations of this crisis is of the utmost importance. Three of the countries involved, Portugal, Greece and Spain, share some important attributes: they are all recent democracies and comparatively less developed economies in the set of the twelve initial member States of the eurozone. For these three countries this paper shows that the behavior of the political variables emphasized by the literature as determining the performance of fiscal variables, is indeed statistically different from the ones observed for the other countries in difficulties, Ireland and Italy, which are mature democracies and comparatively developed economies. These outcomes are in line with what the relevant literature expects from countries with those characteristics, such as election year budget cycles. Besides, post-election year budget effects were also detected implying no fiscal consolidation.

Suggested Citation

  • Abel L. Costa Fernandes & Paulo R. Mota, 2012. "The Present Sovereign Debt Crisis Of The Euro Zone Peripheral Countries: A Case Of Non-Mature Democracies And Less Developed Economies," FEP Working Papers 458, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:458
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal policy; political budget cycles; new democracies;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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