Politico-economic determinants of public debt growth: A case study for Austria

Based on a number of economic and particularly politico-economic arguments, we examine the reasons for the growth of the central government's debt in Austria using time series data for the period 1960 to 1999. Starting with an empirical test of Bohn's theory of sustainability of fiscal policy, which is based on Barro's tax-smoothing model, we extend the model to account for several politico-economic variables suggested by public choice theories. Keynesian stabilization policy objectives, influences of ideology and political parties, the form of government and the political business cycle are tested regarding their ability to explain the growth of public debt in Austria. There is some empirical evidence for systematic influence of government behavior in accordance with recent public choice theories. However, it seems that the most important influence on Austrian fiscal policy is the unemployment rate, which has a significant influence on the decisions made by policy-makers. Concluding, we briefly discuss the implications of these results for the prospects of reducing public debt in Austria in the near future.