IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2546.html
   My bibliography  Save this paper

Economic and Political Determinants of Budget Deficits in the European Union: A Dynamic Random Coefficient Approach

Author

Listed:
  • Ali Bayar
  • Bram Smeets

Abstract

This paper formulates a dynamic Random Coefficient Model (RCM) to consider a set of popular determinants of public deficits in the EU-15 over the period 1971-2006, both at a country-specific level and from a population-wide perspective. Although the extent of government deficits and debt has been one of the most debated macroeconomic issues in recent times, the models trying to capture the explanatory powers driving these deficits typically estimate models that pose the strict assumption of homogeneity on the coefficients over all countries in the model. The sensibility of this assumption will be investigated, with results showing that an increase in the degree of heterogeneity leads to an improvement in the model fit and provides additional information to nuance the effects of the explanatory variables. In this way, the paper exposes a limited degree of partisanship over all countries under consideration, but on the other hand provides evidence for opportunistic behaviour of policymakers in the major part of the sample. The effect of institutional changes following the enforcement of the Maastricht Treaty varies over the countries and is related to the necessity of budgetary consolidation.

Suggested Citation

  • Ali Bayar & Bram Smeets, 2009. "Economic and Political Determinants of Budget Deficits in the European Union: A Dynamic Random Coefficient Approach," CESifo Working Paper Series 2546, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2546
    as

    Download full text from publisher

    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp2546.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Carlos Mulas-Granados, 2003. "The Political and Economic Determinants of Budgetary Consolidation in Europe," European Political Economy Review, European Political Economy Infrastructure Consortium, vol. 1(Spring), pages 15-39.
    2. Alberto F. Alesina & Roberto Perotti, 1999. "Budget Deficits and Budget Institutions," NBER Chapters,in: Fiscal Institutions and Fiscal Performance, pages 13-36 National Bureau of Economic Research, Inc.
    3. Mark Mink & Jakob de Haan, 2005. "Has the Stability and Growth Pact Impeded Political Budget Cycles in the European Union?," CESifo Working Paper Series 1532, CESifo Group Munich.
    4. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, pages 55-93.
    5. de Haan, Jakob & Sturm, Jan-Egbert, 1994. "Political and Institutional Determinants of Fiscal Policy in the European Community," Public Choice, Springer, vol. 80(1-2), pages 157-172, July.
    6. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
    7. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    8. L. Randall Wray & Stephanie Bell, 2004. "Introduction," Chapters,in: Credit and State Theories of Money, chapter 1 Edward Elgar Publishing.
    9. Kajal Lahiri, 2005. "Analysis of Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1093-1095.
    10. 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.
    11. Philippe Robert-Demontrond & R. Ringoot, 2004. "Introduction," Post-Print halshs-00081823, HAL.
    12. Edin, Per-Anders & Ohlsson, Henry, 1991. "Political determinants of budget deficits: Coalition effects versus minority effects," European Economic Review, Elsevier, vol. 35(8), pages 1597-1603, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    fiscal policy; European Monetary Union; Random Coefficient Model; Bayesian Analysis;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2546. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe). General contact details of provider: http://edirc.repec.org/data/cesifde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.