It's Politics, Stupid! Political Constraints Determined Governments' Reactions to the Great Recession

20 Pages Posted: 28 Oct 2016

See all articles by Fabian Gunzinger

Fabian Gunzinger

University of Oxford - Department of Economics

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 2016

Abstract

This paper quantifies the effect of political constraints, as measured by legislative control by the incumbent government, on the size of fiscal stimulus packages that have been put in place as a reaction to the Great Recession. On average, political constraints reduced the size of a country's fiscal stimulus package by between 1 and 2.7 percentage points of GDP. This finding is robust to a number of alternative dependent variables, control variables, and sample specifications and is in line with the widely held, but never tested, perception that political reality limits the de facto application of discretionary fiscal policy as reaction to economic shocks.

Suggested Citation

Gunzinger, Fabian and Sturm, Jan-Egbert, It's Politics, Stupid! Political Constraints Determined Governments' Reactions to the Great Recession (November 2016). Kyklos, Vol. 69, Issue 4, pp. 584-603, 2016. Available at SSRN: https://ssrn.com/abstract=2859172 or http://dx.doi.org/10.1111/kykl.12121

Fabian Gunzinger (Contact Author)

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, Oxfordshire OX1 3UQ
United Kingdom

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

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