The new theory and empirics of political business cycles

Abstract

The lack of fiscal policy discipline and the ways to achieve it are issues that have been in the focus of political and economic debates throughout the European Union, especially in Hungary. Inefficient fiscal policy practices are present in a significant number of EU countries and contrary to other areas of the economy, the way they are handled is far from being relieving. In the past decades, several elements of the economic policy have been removed from direct governmental control, one example being monetary policy. Albeit there is growing demand for linking discretional fiscal policy to certain rules or institutional forms in order to keep governments away from permanent deficit financing and excessive indebtedness, there is no agreement at all on the specific solutions to apply. It is so even though not only economic theory but real life experiences have shown by now that budget stabilization is an indispensable prerequisite of sustainable economic growth.