The Stability and Growth Pact: A European Answer to the Political Budget Cycle?

Thierry Warin and Kenneth Donahue ()

Middlebury College Working Paper Series from Middlebury College, Department of Economics

Abstract: The existing literature on political budget cycles looks at the temptation for incumbent governments to run a greater deficit before an election by considering the characteristics of the incumbent. We propose here to look at the signals the incumbent receives from the voters. For this purpose, we consider the votes from the previous national elections and see whether they may influence the incumbent government to run a sound fiscal policy or an expansionary fiscal policy. However, since 1993 Europe has been equipped with two fiscal rules: a deficit and a debt ceiling. In this context, can we find evidence of a “political budget cycle” before 1993, and did the fiscal rules prevent the existence of a “political budget cycle” afterwards? To address these questions, we use a cross-sectional time series analysis of European countries from 1979 to 2005.

Keywords: Stability and Growth Pact; Political Business Cycle; Political budget Cycle; Partisan Theory (search for similar items in EconPapers)
JEL-codes: E6 F4 P43 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2006-04
New Economics Papers: this item is included in nep-cba, nep-cdm, nep-eec, nep-mac and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:mdl:mdlpap:0606

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