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National elections and sub-national electoral cycles: Do strong fiscal rules matter in Europe?

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  • Antonia Lopez Villavicencio
  • Hugo Oriola

Abstract

This paper investigates Political Business Cycles during national elections across European Union countries and their subnational regions from 1995 to 2022, with a focus on the role of national and supranational fiscal rules. We find robust evidence that national elections are associated with increased regional public spending and reduced income and wealth tax rates. While strong fiscal rules tend to constrain or have limited effect on spending-related PBCs, they simultaneously incentivize tax-based fiscal manipulation, indicating a shift in electoral strategies from expenditure to taxation. This pattern holds across most European countries at both national and regional levels, with variations depending on specific electoral and political systems. We also show that right-wing incumbents engage in both public spending and tax-based opportunistic PBCs, while left-wing incumbents primarily focus on tax-based manipulations. Furthermore, newly elected left-wing incumbents pursue fiscal conservatism, whereas right-wing incumbents typically maintain the fiscal status quo.

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  • Antonia Lopez Villavicencio & Hugo Oriola, 2025. "National elections and sub-national electoral cycles: Do strong fiscal rules matter in Europe?," EconomiX Working Papers 2025-15, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2025-15
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    More about this item

    Keywords

    Elections; Fiscal rules; Political business cycle; National and regional politics; European Union.;
    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; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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