Political budget cycles in the European Union and the impact of political pressures: a dynamic panel regression analysis

This paper investigates the presence of political budget cycles (PBCs) in the European Union using a data set encompassing all 27 current member states over the period 1997-2008, and analyzes what may explain their variability across countries and over time. Conditioning on partisan considerations and several socio-economic variables, we find evidence in favor of a systematic electoral cycle in fiscal policy (i.e. spending and budget deficits are raised in election years). Furthermore, we find that PBCs are much larger in the Eurozone countries than in the countries that have not yet adopted the euro. Finally, we discuss an interesting area for future research, namely, fiscal policy manipulations are influenced by the information available to the market before elections. Specifically, we show that the size of PBCs is inversely proportional to the relative weight voters assign to non-economic issues prior to an election and positively correlated with the uncertainty over the electoral outcome. Once we account for these two features, the aforementioned differences between the Eurozone and the non-Eurozone countries seem to disappear

Political cycles in a small open economy and the effect of economic integration: evidence from Cyprus

This paper examines whether partisan politics and opportunistic government behavior generate political cycles in a small open economy, and, if so, whether such effects survive under increased economic integration. We discuss evidence drawn from Cyprus for the period 1978-2006. The empirical analysis extends the work of Alesina et al. (1997) to accommodate the special features of the Cypriot economy in a controlled environment era and follows a more technical econometric approach to ensure that our estimations will not draw misleading inferences. The results are in line with the rational partisan model and are similar to the ones obtained for other countries. On the other hand, the findings for Cyprus support also the existence of an electoral cycle in fiscal policy and reject the one in monetary policy. We argue that the unique politico-economic profile of a country is crucial for the empirical success of different theories. Furthermore, we find that the reported effects do not persist in the run-up to EU accession and ERM II participation. The implementation of several structural reforms and the Maastricht criteria seem to affect governments' ability to influence the domestic economy

Gender voting gap in the dawn of urbanization: evidence from a quasi-experiment with Greek special elections

The electoral law of 31 May 1952 extended the voting rights to all adult women in Greece. This paper examines the impact of women’s enfranchisement on party vote shares by employing a unique dataset of 385 communities located in seven prefectures in Greece where by-elections took place in 1953 and 1954 (for strictly exogenous reasons). To estimate causal effects, we exploit the observed heterogeneity in the proportion of women in the electorate across communities as the identifying source of variation, and employ a difference-in-differences design that holds unobserved local characteristics fixed. Our results provide strong evidence in favour of the “traditional gender voting gap” (women voting more conservatively compared to men) in the urban prefecture of Thessaloniki, and no evidence of gender voting differences in the remaining (six) predominantly rural prefectures of our sample. Our results also reveal that the existence of a gender voting gap is highly conditional upon the proportion of economically inactive women; that is, women tend to vote for right parties when they are outside of the labour force. Interestingly, when we account for this conditionality, a suffrage-induced pro-right shift can also be observed in communities outside Thessaloniki. Building on the economic bargaining models of the family, we argue that, in an economic environment characterized by limited demand for female labour force participation, women support more vigorously the sanctity and the strength of family values and tend to vote more conservatively compared to men

Are the effects of terrorism short-lived?

Terrorism elicits strong public reactions immediately after the attack, with important implications for democratic institutions and individual well-being. Are these effects short-lived? We answer this question using a natural experiment design and combining data on terrorist attacks in the United Kingdom with a Continuous Monitoring Survey. We find that heightened risk perceptions and emotional reactions in the wake of deadly attacks do not dissipate in the very short run but are sustained over time and up to 120 days after the attacks. Whereas large-scale attacks cause a long-lasting shift in risk assessments and emotions, the corresponding effect of smaller-scale terrorism incidents appears to subside within one month. Overall, the impact of terrorism does not fade away easily

Foreign vs domestic ownership on debt reduction: an investigation of acquisition targets in Italy and Spain

This paper examines the role of foreign versus domestic ownership in reducing the debt levels of acquired firms in Italy and Spain over the period 2002–2010. Acknowledging that lower debt levels can mitigate the risk of failure and thus enhance the chances for a positive post-acquisition performance and survival, we particularly examine the causal effect of foreign and domestic acquisitions on two firm-level debt measures: gearing and short-term leverage. To estimate causal relationships, we control for selection bias by applying propensity score matching techniques. Our results indicate that foreign acquisition leads to a significant and steady reduction in the debt ratios of the target companies. In contrast, the relationship between domestic acquisition and debt reduction appears to be smaller and statistically less robust

Market power in CEE banking sectors and the impact of the global financial crisis

The aim of this study is to undertake an up-to-date assessment of market power in Central and Eastern European banking markets and explore how the global financial crisis has affected market power and what has been the impact of foreign ownership. Three main results emerge. First, while there is some convergence in country-level market power during the pre-crisis period, the onset of the global crisis has put an end to this process. Second, bank-level market power appears to vary significantly with respect to ownership characteristics. Third, asset quality and capitalization affect differently the margins in the pre-crisis and the crisis periods. While in the pre-crisis period the impacts are similar for all banks regardless of ownership status, in the crisis period non-performing loans have a negative effect and capitalization a positive effect only for domestically-owned banks

Bank Value and Geographic Diversification: Regional vs Global

This paper analyzes the impact of geographic diversification on bank value by employing a data set comprising the largest banks across the world, originating from both developed and emerging countries. The findings suggest that the value impact of international diversification depends on a bank’s home country: higher levels of diversification are associated with changes in valuations only for banks originating from emerging countries. In addition, the locus of destination of the diversification efforts matters for the direction of effects: while higher levels of intra-regional diversification lead to value enhancement, higher levels of inter-regional diversification seem to induce a negative (but statistically less robust) effect on the valuation of emerging country banks

Appendix to "Political budget cycles in the European Union and the impact of political pressures"

This paper investigates the presence of political budget cycles (PBCs) in the European Union using a data set encompassing all 27 current member states over the period 1997-2008, and analyzes what may explain their variability across countries and over time. Conditioning on partisan considerations and several socio-economic variables, we find evidence in favor of a systematic electoral cycle in fiscal policy (i.e. spending and budget deficits are raised in election years). Furthermore, we find that PBCs are much larger in the Eurozone countries than in the countries that have not yet adopted the euro. Finally, we discuss an interesting area for future research, namely, fiscal policy manipulations are influenced by the information available to the market before elections. Specifically, we show that the size of PBCs is inversely proportional to the relative weight voters assign to non-economic issues prior to an election and positively correlated with the uncertainty over the electoral outcome. Once we account for these two features, the aforementioned differences between the Eurozone and the non-Eurozone countries seem to disappear