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

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...

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Bibliographic Details
Main Author: Buti, Marco
Other Authors: van den Noord, Paul
Format: eBook
Language:English
Published: Paris OECD Publishing 2003
Series:OECD Economics Department Working Papers
Subjects:
Economics
Euro Area
Online Access:
Collection: OECD Books and Papers - Collection details see MPG.ReNa
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520 |a 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 .. 

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