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Are there Political Budget Cycles in the Euro Area?

[journal article]

Mink, Mark; de Haan, Jakob

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Abstract This article examines whether there is a political budget cycle (PBC) in countries in the euro area. Using a multivari ate model for 1999–2004 and various election indicators we find strong evidence that, since the start of the Stability and Growth Pact, fiscal policy-makers in the euro area have pursued 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.
Classification Economic Policy; Public Finance
Free Keywords fiscal policy; political budget cycle; Stability and Growth Pact;
Document language English
Publication Year 2006
Page/Pages p. 191-211
Journal European Union Politics, 7 (2006) 2
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)