Political budget cycles and effects of the excessive deficit procedure: The case of Greece

Petrakos, George; Ρόντος, Κώστας; Vavoura, Chara; Salvati, Luca; Vavouras, Ioannis

doi:10.15196/rs110202

Cited by 12 publications

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“…The existence of political budget cycles has been documented for the Greek economy, with specific reference to a shorter time period, namely, 1980-2017 (Petrakos et al 2021a). We have also demonstrated how these cycles have been generated primarily on the expenditure side and not on the revenue side (Petrakos et al 2021c). The present analysis differs substantially from the existing research in many aspects.…”

Section: Logical Framework and Scope Of The Studymentioning

confidence: 59%

Domestic vs. External Economic Sectors and the Political Process: Insights from Greece

et al. 2022

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Building on the well-established relationship between economic dynamics and political processes, we focus on the most important element of the political process, namely, general (or national) elections, and look into their effects on public finance and total economic output. In this vein, the present study has three objectives: (i) to investigate political budget cycles in Greece during the period known as the ‘Third Hellenic Republic’ (in Greek, ‘Metapolitefsi’, hereafter THR) since 1974; (ii) to assess whether national elections affect total economic activity in a stabilizing or destabilizing way; and (iii) to examine the possible effects of the external sector of the economy on the budget balance. The empirical findings of our analysis document how the Greek economy was characterized by sharp political budget cycles in correspondence with the THR, exerting a destabilizing effect on the total output of the economy. Performances of the external sector of the economy have significantly affected budget balances in Greece.

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Section: Logical Framework and Scope Of The Studymentioning

confidence: 59%

Domestic vs. External Economic Sectors and the Political Process: Insights from Greece

et al. 2022

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“…By taking advantage of the electorate’s ‘political myopia’ or by cashing in on temporary ‘informational asymmetries’, Greek politicians frequently chose to maximize their own ‘voting function’ instead of a social welfare function, as is commonly assumed in economic policy (Petrakos et al 2021a ). These cycles, although detrimental for public debt and the stability of the aggregate economy (Petrakos et al 2022a ), had a short-term positive effect on income inequality, mainly because they materialize through a raise of social transfers during the election years (Petrakos et al 2021b ). However, in the years of elections under the EDP, such PBC-related transfers were mostly cut, resulting in a worse income distribution.…”

Section: Discussionmentioning

confidence: 99%

Income Inequality in the Over-Indebted Eurozone Countries and the Role of the Excessive Deficit Procedure

Petrakos¹,

Ρόντος²,

Salvati³

et al. 2023

Open Econ Rev

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The present study identifies economic, political, and institutional variables that influence the distribution of personal incomes in the Eurozone countries facing severe fiscal imbalances, namely Greece, Italy, Portugal, and Spain. Crucially, this paper is the first to investigate the effect of the corrective arm of the Stability and Growth Pact, the so-called Excessive Deficit Procedure (EDP), on the income distribution of the aforementioned economies, where EDP was imposed over a long time period. The empirical results of this study show that (i) EDP impact depends on the specific mix of policy measures undertaken and that (ii) a high public debt does not reflect the existence of common factors shaping income distribution in the four Southern European economies. The share of labor income in total income, constitutes a significant determinant of income inequality. However, we find that the relationship between labor share and income inequality is also country-specific, depending on the intrinsic characteristics of each individual economic system.

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“…The central hypothesis of this phenomenon is that incumbent politicians, faced with a "myopic" electorate with a decaying memory of past events (Bonfiglioli and Gancia 2013) or taking advantage of informational asymmetries that exist between them and rational constituents (Rogoff and Sibert 1988), choose to maximize their voting function instead of their social welfare function (Nordhaus 1975). Consequently, governments may pursue opportunistic expansionary fiscal policies before elections to appear competent and offer voters an illusion of economic prosperity (Petrakos et al 2021b). This behavior may affect the distribution of income in the short run due to the economic benefits provided to the electorate to soften their impressions about the current governance of the country.…”

Section: Methodsmentioning

confidence: 99%

“…The limited empirical research that exists on this issue concludes that income inequality actually improves during pre-election periods (Sever and Yucel 2021). To allow for the well-documented presence of political budget cycles (e.g., Petrakos et al 2021b) in the Greek economy, we include:…”

Section: Methodsmentioning

confidence: 99%

The Impact of Recent Economic Crises on Income Inequality and the Risk of Poverty in Greece

et al. 2023

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We consider the impact of the two recent economic crises, one that resulted from the great recession of 2007–2009 and one following the COVID-19 pandemic, on income inequality and the risk of poverty in Greece. To this end, we also investigate the key macroeconomic variables affecting the Greek income distribution. We find that alternative measures of inequality and relative poverty have deteriorated during the years of crises, implying that the country’s response to economic shocks has been particularly harmful for its more disadvantaged citizens. Regarding the variables affecting the income distribution, we show that income inequality and the risk of poverty increase with growth, implying that the benefits of growth, and burdens of recession, are distributed unequally among members of the Greek society. Moreover, inequality appears to increase with unemployment and decrease with the share of wages and salaries in total income. This finding highlights the importance of labour market regulations and workers’ welfare for attaining equality. Finally, we provide evidence that, during pre-election periods, income inequality is reduced, meaning that the political budget cycles, which are characteristic of the Greek economy, generate gains in terms of equality, but these gains are short-lived and mainly benefit the middle bracket of the income distribution.

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Political budget cycles and effects of the excessive deficit procedure: The case of Greece

Cited by 12 publications

References 0 publications

Domestic vs. External Economic Sectors and the Political Process: Insights from Greece

Domestic vs. External Economic Sectors and the Political Process: Insights from Greece

Income Inequality in the Over-Indebted Eurozone Countries and the Role of the Excessive Deficit Procedure

The Impact of Recent Economic Crises on Income Inequality and the Risk of Poverty in Greece

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