Title: Democratic learning and fiscal rules in the political budget cycles of the CEE countries

Authors: Nadezda Stanova

Addresses: Faculty of Applied Economics, University of Antwerp, Prinsstraat 13, Antwerpen 2000, Belgium

Abstract: Political economy literature acknowledges the importance of democratic learning and of fiscal rules in preventing politically driven deficits. This paper investigates the role of these factors for the Political Budget Cycles in the ten Central and East European (CEE) countries from 1990 to 2010. Detailed information on democratic parliamentary elections is combined with quantitative data on the strength of the fiscal rules. Results of dynamic panel regressions show that with the increasing democratic experience of the voters the opportunistic budget cycle has dampened. Moreover, there is empirical support for the view that strengthening fiscal rules somewhat reduced the scope for opportunistic manipulations. On the other hand, consolidation episodes did not preclude politically driven cycles.

Keywords: PBC; political budget cycles; fiscal policy; fiscal rules; democratic learning; Central and Eastern Europe; CEE countries; new EU members; European Union; emerging economies; dynamic panel data; GMM; generalised method of moments; Arellano-bond difference estimator; political economy; democratic parliamentary elections; democracy; politics.

DOI: 10.1504/IJEPEE.2012.048501

International Journal of Economic Policy in Emerging Economies, 2012 Vol.5 No.2, pp.168 - 182

Received: 09 Nov 2011
Accepted: 17 Mar 2012

Published online: 12 Aug 2012 *

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