Economic, Political and Institutional Determinants of Budget Deficits in the European Union

45 Pages Posted: 15 Apr 2009

See all articles by Ali H. Bayar

Ali H. Bayar

European Commission, DG II; Université Libre de Bruxelles (ULB); CESifo (Center for Economic Studies and Ifo Institute)

Bram Smeets

EcoMod - Brussels

Date Written: April 1, 2009

Abstract

Using an extended data set of EU countries ranging from 1971-2006 and relevant econometric methods, we investigate the economic, political, and institutional determinants of government deficits in the EU. The results show a strong opportunistic behaviour of policymakers which leads to political business cycles. We find that political fragmentation does not play a significant role in government deficits. Partisan behaviour has a weak effect. The stability of the government has a significant negative impact on the size of the budget deficit. The paper also shows the significant effects of the Maastricht Treaty on fiscal consolidation.

Keywords: fiscal policy, European Monetary Union

JEL Classification: C33, E62, H6, H87

Suggested Citation

Bayar, Ali H. and Smeets, Bram, Economic, Political and Institutional Determinants of Budget Deficits in the European Union (April 1, 2009). CESifo Working Paper Series No. 2611, Available at SSRN: https://ssrn.com/abstract=1379604 or http://dx.doi.org/10.2139/ssrn.1379604

Ali H. Bayar (Contact Author)

European Commission, DG II ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Université Libre de Bruxelles (ULB) ( email )

CP 132 Av FD Roosevelt 50
Brussels, Brussels 1050
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Bram Smeets

EcoMod - Brussels ( email )

Brussels
Belgium

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