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Has the Stability and Growth Pact Impeded Political Budget Cycles in the European Union?

Author

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  • Mark Mink
  • Jakob de Haan
  • Jakob de Haan

Abstract

This paper examines whether there is a political budget cycle (PBC) in countries in the euro area. Using a multivariate model for the period 1999-2004 and various election indicators we find strong evidence that the Stability and Growth Pact has not restricted fiscal policy makers in the euro area in pursuing expansionary policies before elections. In an election-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.

Suggested Citation

  • Mark Mink & Jakob de Haan & Jakob de Haan, 2005. "Has the Stability and Growth Pact Impeded Political Budget Cycles in the European Union?," CESifo Working Paper Series 1532, CESifo.
  • Handle: RePEc:ces:ceswps:_1532
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    References listed on IDEAS

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    1. 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.
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    7. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    8. 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.
    9. Schuknecht, Ludger, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series 421, European Central Bank.
    10. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
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    More about this item

    Keywords

    fiscal policy; political budget cycle; Stability and Growth Pact;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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