Political budget cycles in the European Union and the impact of political pressures

This paper investigates the presence of political budget cycles (PBCs) in the European Union using data from all 27 member states over the period 1997-2008, and explores their variability across countries and over time. Three basic results emerge: First, incumbent governments across the EU tend to engineer PBCs in order to enhance their re-election prospects. Second, PBCs are much larger and statistically more robust in the Eurozone countries than in the countries that have not yet adopted the euro. Third, the degree to which governments manipulate fiscal policy is negatively correlated with non-economic voting and positively correlated with electoral competitiveness.