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Political Budget Cycles in the Eurozone

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  • Frederico Silva Leal

Abstract

This paper provides evidencesof the electoral influence on fiscal policy in the Eurozonecountries. Using data from EA19 in 1995-2017 and a time dummy to identify election years, it was applied a Fixed Effects model to assess its impact on fiscal instruments. According to the results, the elections seemto increase both compensations to employees and other current expenditure. In addition, the politically motivated policiesseem to differ from low and highly indebted countries. Giving the electoral impact on the compensation to employees, the pro-cyclical tax strategy,and the absence of a Ricardian fiscal regime, its perceived less prudent policiesfrom the most indebted countries. Furthermore, after countries joined the EMU, policy makers beganto increase tax burden facing interest rate shocks,since they lose the ability to manipulate monetary policy.

Suggested Citation

  • Frederico Silva Leal, 2020. "Political Budget Cycles in the Eurozone," Working Papers REM 2020/0120, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp01202020
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    More about this item

    Keywords

    Political Budget Cycles; Fiscal policy; Elections; EMU; IV-GMM;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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