Proposal for an Alternative Indicator for Testing the Presence of the Political-Budget Cycle in the Case of Tax Policy

Abstract

Th e content of this paper is a proposal for a new explanatory variable that can be used instead of commonly used variables expressing the dates of parliamentary elections. Th e proposed variable is then used to verify the existence of the impact of the political-budget cycle in the area of taxation on a sample of countries belonging to the European Union (EU28) over the period from 2000 to 2012. Combining the use of this variable and the Pearson correlation coeffi cient, a statistically signifi cant eff ect of PBC was identifi ed, particularly in the fi eld of indirect excise taxes, and especially for countries belonging to the group of new EU Member States. Th e article also contains a comparison of results using traditional indicators which take into account the date of parliamentary elections and the results using a new variable. Th e results obtained show that with the help of two of the four indicators, statistically signifi cant changes in tax policy in the area of indirect excise duties were identifi ed. When evaluating a new variable, it can be noted that it is a variable which is appropriate for testing the eff ect of PBC, since not only has the number of statistically signifi cant correlation coeffi cients been increased, but additionally, illogical results contrary to PBC theory have not been identifi ed.