UNSPECIFIED. (2001) Fiscal policy and politics: theory and evidence from Greece 1960-1997. ECONOMIC MODELLING, 18 (2). pp. 253-268. ISSN 0264-9993

Abstract

We present a two-party dynamic model of optimal fiscal policy which integrates stabilizing, electoral and partisan motives. The political equilibrium determines the path of government expenditures, taxes and debt. It shows how electoral and partisan policies weaken stabilizing feedback efforts. When we use Greek data, the theoretical restrictions are not rejected and we get sensible estimates. The early period 1960-1973 and the Maastricht Treaty period 1993 to today differ from the period in between, 1974-1992. There is evidence of pre-election cycles during 1960-1992. There are no partisan differences; both Conservative and Socialist administrations can be equally blamed for fiscal laxity. The latter started in 1974, became stronger in the late 1970s and continued until the early 1990s. (C) 2001 Elsevier Science B.V. All rights reserved.

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