Political budget cycles in the Eurozone

• Autor(a) principal: Leal, Frederico Silva
• Data de Publicação: 2020
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.5/19985
• topic: Political Budget Cycles; Fiscal policy; Elections; EMU; IV-GMM

This paper provides evidences of the electoral influence on fiscal policy in the Eurozone countries. 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 seem to increase both compensations to employees and other current expenditure. In addition, the politically motivated policies seem 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 policies from the most indebted countries. Furthermore, after countries joined the EMU, policy makers began to increase tax burden facing interest rate shocks, since they lose the ability to manipulate monetary policy.