Political Business Cycles in Post-Communist European Countries

This article analyses political business cycles (PBCs) in ten former European communist countries. The dataset used covers the period 1990-2018. The results show that the PBCs manifest themselves in these countries through both fiscal and monetary policy. Changes in government expenditure during election times are found to be significant in reducing unemployment. Hence, it signals that there is a politically driven fiscal expansion. The results also show the importance of institutional quality in reducing the effects of the PBCs. The monetary policy models indicate that changes in money stock during and around election times affect the unemployment rate. Undertaking a subsample analysis of the non-EU and EU members highlights the case that the membership of the EU is an important factor in preventing the development of PBCs.