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Discretionary Fiscal Policy and Elections: The Experience of the Early Years of EMU

Author

Listed:
  • Marco Buti
  • Paul van den Noord
Abstract
An early criticism of the Stability and Growth Pact has pointed to its asymmetric nature and the weak mechanisms to prevent politically-motivated fiscal policies: its constraints would bite in downswings but not in upswings, especially if in the latter the electoral cycle increases the temptation to run expansionary policies. We find that the experience of the initial years of EMU lends support to this criticism. Overall, unlike the experience in the run-up to EMU, fiscal policies had an expansionary bias, and a “genuine” discretionary boost took place in correspondence to political elections. Both sign and composition of such discretionary changes are in line with the predictions of the recent literature on electoral budget cycles. Closer fiscal surveillance may help detect early such behaviour, but it is unlikely to curb the incentives to run politically-motivated fiscal policies when elections approach ... Politique budgétaire discrétionnaire et élections : L'expérience des premières années de l'UEM D’emblée, le pacte de stabilité et de croissance a été critiqué pour son caractère asymétrique et la faiblesse de ses mécanismes destinés à empêcher les mesures budgétaires à finalité politique : ses contraintes seraient efficaces en période de ralentissement économique, mais pas en période d’accélération, surtout lorsque, dans ce dernier cas, le cycle électoral accroît la tentation d’une politique expansionniste. Notre constat est le suivant : l’expérience des premières années de l’UEM confirme ces critiques. Au total, contrairement à ce qu’on a pu observer durant les années qui ont précédé l’UEM, les politiques budgétaires ont connu un biais expansionniste et il y a eu véritablement expansion budgétaire parallèlement aux élections politiques. Ces changements discrétionnaires sont conformes tant en ce qui concerne leur signe que leur composition à ce que pouvaient laisser prévoir les ouvrages récents consacrés au cycle électoral des budgets. Une surveillance budgétaire plus ...

Suggested Citation

  • Marco Buti & Paul van den Noord, 2003. "Discretionary Fiscal Policy and Elections: The Experience of the Early Years of EMU," OECD Economics Department Working Papers 351, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:351-en
    DOI: 10.1787/378575422756
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    More about this item

    Keywords

    cycle politique; Economic and Monetary Union; elections; fiscal policy; pacte de stabilité et de croissance; political business cycle; politique budgétaire; stability and growth pact; Union économique et monétaire; élections;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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