Political Budget Cycles in the Eurozone

Frederico Leal

No 2020/0120, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

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.

Keywords: Political Budget Cycles; Fiscal policy; Elections; EMU; IV-GMM (search for similar items in EconPapers)
JEL-codes: D72 E12 E62 H62 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pol
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