Unraveling the political budget cycle nexus in Greece

Nikiforos Laopodis, Anna Merika and Annie Triantafillou

Research in International Business and Finance, 2016, vol. 36, issue C, 13-27

Abstract: This paper studies whether the Greek budget deficit is systematically affected by changes of government in the context of two political parties alternating in office. We advance the existing literature by constructing a tax evasion variable specific to the Greek economy and incorporating into our models. Testing the impact of each party upon the budget deficit during election and non-election years in the presence of tax evasion, we find a strong and persistent relationship between them independently of party political ideology. We assert that our finding constitutes a stylized fact of the Greek drama. Our results suggest that tax evasion together with the incident of two political parties alternating in office have tended to exacerbate the Greek government budget deficit accounting for about half the variation in it over the period examined. Moreover, GDP growth is found to exert a mitigating and permanent effect on budget deficit fluctuation.

Keywords: Greece; Political cycles; Tax evasion; Budget deficit (search for similar items in EconPapers)
JEL-codes: E62 H62 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:36:y:2016:i:c:p:13-27

DOI: 10.1016/j.ribaf.2015.09.004

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