Democratic learning and fiscal rules in the political budget cycles of the CEE countries

Political economy literature acknowledges the importance of democratic learning and of fiscal rules in preventing politically driven deficits. This paper investigates the role of these factors for the Political Budget Cycles in the ten Central and East European (CEE) countries from 1990 to 2010. Detailed information on democratic parliamentary elections is combined with quantitative data on the strength of the fiscal rules. Results of dynamic panel regressions show that with the increasing democratic experience of the voters the opportunistic budget cycle has dampened. Moreover, there is empirical support for the view that strengthening fiscal rules somewhat reduced the scope for opportunistic manipulations. On the other hand, consolidation episodes did not preclude politically driven cycles.