Elections and opportunistic budgetary policies in Greece

Abstract

We consider the presence of electorally motivated cycles in Greece's fiscal policies from 1974 to 2011 and find strong evidence of preelectoral manipulation. In the election years the government's primary balance deteriorates via increased expenditures. The political budget cycle appears subdued in the post‐Maastricht treaty period, which implies tighter constraints on public finances. We demonstrate, however, that the opportunistic manipulation of public finances lives on, albeit through a different channel. In particular, we produce evidence of electoral effects in the composition of expenditures, with the expenses for compensation to employees increasing during election years. Furthermore, our results show that snap elections affect expenses positively, and prolonged incumbencies affect negatively the government's primary balance and revenues. Finally, no evidence of partisan effects exists in Greece's fiscal policies.