A Common Election Day for Euro Zone Member States?
EI Working Papers / Europainstitut, 75.
Europainstitut, WU Vienna University of Economics and Business, Vienna.
This paper tests for the Euro zone the hypothesis put forward by Sapir and Sekkat (1999) that synchronizing elections might improve welfare. After identifying a political budget cycle in the Euro zone we build a politico-macroeconomic model and simulate the effects of adopting a common election day in the 12 Euro zone member states. The results support most of the theoretical predictions by Sapir-Sekkat: (i) Synchronizing the elections could enhance GDP growth, reduce unemployment, but leads to increased inflation and in some countries to a deterioration of the budget; higher inflation forces ECB to monetary restrictions. (ii) If the synchronization happens asymmetrically - either only in the large or only in the small Euro zone countries - the result depends on the size of the spillovers. (iii) As anticipated in Sapir -Sekkat a common election day is a further step towards the desired "European business cycle", however, at the cost of increasing its amplitude. Harmonizing elections is another method of policy coordination. Whether this leads to higher welfare is a matter of weighting the different macroeconomic outcomes and it also depends on the model applied. (author's abstract)