The Mechanism of Political Budget Cycles in Greece

George Petrakos (), Konstantinos Rontos (), Chara Vavoura () and Ioannis Vavouras ()
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George Petrakos: Panteion University of Social and Political Sciences
Konstantinos Rontos: University of the Aegean
Chara Vavoura: University of Athens
Ioannis Vavouras: Panteion University of Social and Political Sciences

A chapter in Advances in Longitudinal Data Methods in Applied Economic Research, 2021, pp 123-133 from Springer

Abstract: Abstract Extended empirical research has established the existence of political budget cycles in Greece but remains agnostic about the mechanism which generates them. In this paper we contribute to the literature by investigating precisely this mechanism of the creation of political budget cycles using data from the Greek economy for the last four decades (1980–2018). We find that it is via the manipulation of public expenditure rather than through the handling of public revenue that opportunistic politico-economic behaviour arises. We go on to build a novel empirical model linking government spending and revenue and estimate that, in years of general elections, public expenditure rises by around 2.2% of GDP. This level is not typical of a developed economy. Still, our finding is robust to various specifications of our model, both linear and non-linear, and hints towards a severe decline in the underlying political culture of the country. We conclude that, in the case of Greece, future fiscal rules aiming to suppress the political budget cycles phenomenon should target the control of pre-election transfer payments instead of resorting to tax increases.

Keywords: Political budget cycles; Political fiscal cycles; Politico-economic models; Public revenue; Public expenditure (search for similar items in EconPapers)
JEL-codes: D72 E62 H62 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-63970-9_9

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DOI: 10.1007/978-3-030-63970-9_9

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