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Discretionary Fiscal Policy and Elections: The Experience of the Early Years of EMU

  • Marco Buti
  • Paul van den Noord

An early criticism of the Stability and Growth Pact has pointed to its asymmetric nature and the weak mechanisms to prevent politically-motivated fiscal policies: its constraints would bite in downswings but not in upswings, especially if in the latter the electoral cycle increases the temptation to run expansionary policies. We find that the experience of the initial years of EMU lends support to this criticism. Overall, unlike the experience in the run-up to EMU, fiscal policies had an expansionary bias, and a “genuine” discretionary boost took place in correspondence to political elections. Both sign and composition of such discretionary changes are in line with the predictions of the recent literature on electoral budget cycles. Closer fiscal surveillance may help detect early such behaviour, but it is unlikely to curb the incentives to run politically-motivated fiscal policies when elections approach ... Politique budgétaire discrétionnaire et élections : L'expérience des premières années de l'UEM D’emblée, le pacte de stabilité et de croissance a été critiqué pour son caractère asymétrique et la faiblesse de ses mécanismes destinés à empêcher les mesures budgétaires à finalité politique : ses contraintes seraient efficaces en période de ralentissement économique, mais pas en période d’accélération, surtout lorsque, dans ce dernier cas, le cycle électoral accroît la tentation d’une politique expansionniste. Notre constat est le suivant : l’expérience des premières années de l’UEM confirme ces critiques. Au total, contrairement à ce qu’on a pu observer durant les années qui ont précédé l’UEM, les politiques budgétaires ont connu un biais expansionniste et il y a eu véritablement expansion budgétaire parallèlement aux élections politiques. Ces changements discrétionnaires sont conformes tant en ce qui concerne leur signe que leur composition à ce que pouvaient laisser prévoir les ouvrages récents consacrés au cycle électoral des budgets. Une surveillance budgétaire plus ...

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 351.

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Date of creation: 03 Mar 2003
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Handle: RePEc:oec:ecoaaa:351-en
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