Searching for Political Fiscal Cycles in Hungary
Hungary has had a remarkably high public debt throughout the transition, and it has continued to increase during recent years, exceeding 80% of the GDP. Its debt and fiscal deficit were the highest among the Visegrád countries during the transition. One factor triggering the debt increase may be elections-related fiscal policies. By analyzing quarterly data for Hungary, we found clear empirical evidence of fiscal expansion before elections and contractions afterwards. These events are widely known as political fiscal cycles. We observed statistically significant incremental increases in fiscal deficits as elections approach, both in nominal and in GDP ratios, followed by contractions after elections. Thus, it can be concluded that incumbents in Hungary are engaged in opportunistic political fiscal cycles by embracing expansionary fiscal policy before parliamentary elections. Our findings also suggest that political fiscal cycles in Hungary may be an underlying factor contributing to the accumulation of public debt. (original abstract)
- Akhmedov, A., Zhuravskaya, E. (2004). Opportunistic political cycles: test in a young democracy setting. The Quarterly Journal of Economics, 119 (4), 1301-1338.
- Alesina, A. (1987). Macroeconomic policy in a two-party system as a repeated game. The Quarterly Journal of Economics, 102 (3), 651-678.
- Alesina, A., Sachs, J. (1988). Political parties and the business cycle in the United States, 1948-1984. Journal of Money, Credit and Banking, 20 (1), 63-82.
- Alesina, A., Rosenthal, H. (1995). Partisan politics, divided government, and the economy. Cambridge, UK: Cambridge University Press.
- Alesina, A., Roubini, N. (1992). Political cycles in OECD economies. Review of Economic Studies, 59 (4), 663-688.
- Alesina, A., Roubini, N., & Cohen G. D. (1997). Political cycles and the macroeconomy. Cambridge, MA: The MIT Press.
- Alt, J. E., & Lassen, D. D. (2006).Transparency, political polarization, and political budget cycles in OECD countries. American Journal of Political Science, 50 (3), 530-550.
- Ames, B. (1987). Political survival: Politicians and public policy in Latin America (Vol. 12). Berkeley, CA: University of California Press.
- Asutay, M. (2004, April). Searching for opportunistic political business cycles in Turkey. Paper presented at Annual Conference of the European Public Choice Society, Berlin.
- BBC (2012).Hungary aid frozen by EU over budget deficit. Available on http://www.bbc.co.uk/news/business-17357626, accessed in March 2013.
- Beck, N. (1987). Elections and the FED: Is there a political monetary cycle? American Journal of Political Science, 31 (1), 194-216.
- Block, S. A. (2002). Political business cycles, democratization, and economic reform: the case of Africa. Journal of Development Economics, 67 (1), 205-228.
- Box, G. E. P., Jenkins, G. M. (1970).Time series analysis, forecasting and control. San Francisco, CA: Holden-Day Inc.
- Box, G. E. P., Tiao, G. C. (1975). Intervention analysis with applications to economic and environmental problems. Journal of American Statistical Association, 70 (349), 70-79.
- Brender, A., Drazen A. (2005). Political budget cycles in new versus established democracies. Journal of Monetary Economics, 52 (7), 1271-1295.
- Cukierman, A., Meltzer, A. H. (1986). A positive theory of discretionary policy, the costs of democratic government, and the benefits of a constitution. Economic Inquiry, 24 (3), 367-388.
- Enders, W. (2004). Applied econometric time series (2nd ed.). New York, NY: John Wiley & Sons.
- EUROSTAT (2012). Database. Available at: http://appsso.eurostat.ec.europa.eu/nui/setupModifyTableLayout.do
- Galli, E., Rossi, S. P. S. (2002). Political budget cycles: the case of the western German lander. Public Choice, 110 (3-4), 283-303.
- Grier, K. B. (1987). Presidential election and Federal Reserve Policy: An empirical test. Southern Economic Journal, 54 (2), 475-486.
- Grier, K. B. (1989). On the existence of a political monetary cycle. American Journal of Political Science, 33 (2), 376-389.
- Grier, K. B. (2008). US presidential elections and real GDP growth, 1961-2004. Public Choice, 135 (3- 4), 337-352.
- Haggard, S., Kaufman, R. R., & Shugart, M. (2001). Politics, Institutions, and Macroeconomic Adjustment: Hungarian Fiscal Policy Making in Comparative Perspective. In J. Kornai, S. Haggard, R. R. Kaufman, R. (Eds.), Reforming the State Fiscal and Welfare Reform in Post-Socialist Countries (pp. 75- 110). Cambridge, UK: Cambridge University Press.
- Hallenberg, M., de Souza, L. V., & Clark, W. R. (2002). Political business cycles in EU accession countries. European Union Politics, 3 (2), 231-250.
- Hibbs, D. A. (1977). Political parties and macroeconomic policy. American Political Science Review, 71(4), 1467-1487.
- Hibbs, D. A. (1987). The American Political Economy: Macroeconomics and Electoral Politics. Cambridge, MA: Harvard University Press.
- Imami, D., Lami, E. (2006). Searching for political business cycles in Albania. Periodica Politechnica, 14 (2), 53-69.
- Krause, G. A. (2005). Electoral incentives, political business cycles and macroeconomic performance: empirical evidence from post-war US personal income growth. British Journal of Political Science, 35 (1), 77-101.
- McCallum, B. (1978). The political business cycle: an empirical test. Southern Economic Journal, 44 (3), 504-515.
- Nordhaus, W. D. (1975). The political business cycle. Review of Economic Studies, 42 (2), 169-190.
- Persson, T., Tabellini, G. (1990). Macroeconomic policy, credibility and politics. Chur Switzerland: Harwood Academic Publishers.
- Persson, T., Tabellini, G. (2003). The economic effect of constitutions. Cambridge, MA: MIT Press.
- Rose, S. (2006). Do fiscal rules dampen fiscal cycle?. Public Choice, 128 (3-4), 407-431.