Voters' Awareness as a Determinant of Political Budget Cycles: Evidence from Selected European Economies

This paper analyzes the presence of political budget cycles (PBC) in connection with the different levels of voter awareness in selected European countries. The characteristics of voters and their awareness of the real motives of incumbent politicians in conducting fiscal policy are of particular importance in PBC models. This study uses system GMM to estimate the dynamic panel data models that capture the behavior of structural budget balances. The models are estimated based on balanced panel data for 15 post-transition and low-and middle-income European countries during 2009-2018. One of the key explanatory variables is a Voter Awareness Index, based on Janku and Libich (2019) that is used to examine how structural budget balances differ between countries with different levels of voter awareness. The results indicate that countries with well-informed voters do not experience PBC, while those with poorly aware voters do. This study provides policy recommendations for improving voter awareness and weakening PBC.