Political budget cycles and effects of the excessive deficit procedure: The case of Greece

We study the existence, magnitude, and determinants of political budget cycles in Greece over the past 40 years. We find that the Greek economy has been characterised by extensive electorally-motivated cycles, which are not typical of a developed country. However, we show that the corrective fiscal measures imposed by the European institutions in the face of the Greek debt crisis suppressed these pre-electoral fiscal policy manipulations. In particular, the imposition of the Excessive Deficit Procedure of the Stability and Growth Pact reduced the ability of domestic politicians to increase public deficits to the point where it eliminated, albeit only marginally, political budget cycles.