Political Cycles, Fiscal Deficits, and Output Spillovers in Europe

This paper investigates whether national elections in Europegenerate political cycles in other European countries, and, ifso, whether these spillover effects are likely to surviveinside EMU. The paper first tests whether elections in Germanyaffect macroeconomic outcomes in other European countries andthen investigates the impact of elections on budget deficits.The results indicate that German politics significantlyimpacts macroeconomic variables in other European countries,and also that politics significantly affects the behaviour ofEuropean budgetary policy. The prospect of elections tends toincrease public deficits in recessions, whereas left-winggovernments tend to be more deficit-prone than right-winggovernments regardless of the state of the economy. Moreover,the existence of political cycles spillovers among Europeancountries suggest that there may be a need for electoralcoordination.