Mink and De Haan (2006)

Question 1

What is the research objective of Mink and De Haan (2006)?

Answer 1

To assess whether European political regimes engage in political budget cycles. That is: do fiscal policymakers in the Euro area engage in expansionary fiscal policy during the pre-election period?

Question 2

What is the main hypothesis of Mink and De Haan (2006)?

Answer 2

The paper aims to test whether a political budget cycle exists in the Euro area. In particular, countries in the currency union as the Stability and Growth Pact of the Maastrict treaty is less stringent.

Question 3

What are the main findings of Mink and De Haan (2006)?

Answer 3

The findings suggest that political cycles are significant only in election years, not pre-election years. The results indicate a 1% decrease in budget balance during election years.

Question 4

Briefly describe the econometric model of Mink and De Haan (2006).

Answer 4

The dependent variable is the change in budget balance. The key independent variables are the difference in forecast and realised values of growth and inflation as well as the change in the output gap.

Question 5

What results do we expect from the model in Mink and De Haan (2006)? Are they realised?

Answer 5

We expect a negative and significant coefficient on the independent variable for the pre-election period. This indicates that excess gov. spending has lessened the budget balance. However, these results are found for the election year, not pre-election period.

Question 6

Are the findings of Mink and De Haan (2006) consistent with theory?

Answer 6

The findings are more consistent with the Rational model of opportunistic politicians than the Traditional. However, the rational model predicts pre-election spending increases.

Question 7

What explanation is offered by Mink and De Haan (2006) for their findings?

Answer 7

Excess gov. spending in the pre-election period is harder to hide than in the election period itself. This is because the gov. budget deficit from the pre-election period is likely to be published prior to the election. So, to keep this action hidden, opportunistic politicians choose to act in the election year.