*3.6. Discussing the Outcomes of Econometric Models (1 to 5)*

The models illustrated above have a good fit as the adjusted R2 was systematically above 0.7. In all of them, the actual budget balances (which correspond to public deficits in the case of Greece) were strongly correlated to their one-year lagged values (the coefficient of ABB-1 is 0.75 and 0.53, respectively, in Models 1 and 2). The impact of ABB-1 was reduced slightly when considering the two-year lagged variable ABB-2 (ABB-1 coefficient ranged between 0.37 in Model 3 and 0.43 in Model 4, while ABB-2 coefficient ranged between 0.22 in Model 4 and 0.29 in Model 5). Hence, we conclude that public deficits were persistent in Greece, adjusting slowly over longer periods of time that could last up to two years.

Regarding the impact of the external sector of the economy (EXPO, IMPO, BAGS), exports of goods and services tend to reduce the budget deficit, while imports seem to increase it (Models 2 and 3). Moreover, the balance of goods and services (BAGS = EXPO − IMPO) tends to reduce the budget deficit (Models 4 and 5). This result is a strong indication for the presence of 'twin deficits' in the case of the Greek economy. In particular, according to the 'twin deficits hypothesis', large and growing budget deficits are reflected in the widening of the current account deficit, leading to declining economic policy credibility, macroeconomic imbalances, and a slowdown in economic growth. Although making use of different approaches, these findings are in line with earlier literature testing this hypothesis for Greece (Vamvoukas 1999; Pantelidis et al. 2009; Kalou and Paleologou 2012; Magazzino 2012; Piersanti 2000; Forte and Magazzino 2013; Panousis and Koukouritakis 2020; Katrakilidis and Trachanas 2011; Paparas et al. 2016; Kosteletou 2013). Few additional studies ended up with more mixed, and sometimes contrasting, results (Algieri 2013; Papadogonas and Stournaras 2006).

The results of all econometric models presented in our study demonstrate how the growth rate of real GDP positively affects the actual budget balance, reducing budget deficits. The coefficient of GDP growth rate varied between 0.335 (Model 2) and 0.221 (Model 1). This finding implies that during times of economic slowdown, Greek governments tend to respond with expansionary fiscal policies. Unemployment also affected the dependent variable in a positive way, although with a relatively low coefficient (0.162 in Model 1 and 0.117 in Model 5). This correlation appears counterintuitive at first (*sensu* Rontos et al. 2019). However, economic dynamics in the 2010s may justify this outcome in the case of Greece, since the country was under budgetary supervision by the European Institutions ('Troika memoranda'). In that decade, budget deficits were strictly controlled, and unemployment skyrocketed to unprecedented levels, fueling income inequalities and rising social segregation, especially in urban areas (Gavalas et al. 2014; Di Feliciantonio and Salvati 2015; Panori et al. 2019; Rontos et al. 2016; Salvati 2016, 2018).

Election years (ELE) were found statistically significant in all econometric models. In other words, the political cycle (general parliamentary elections) in Greece was demonstrated to significantly affect the actual budget balance as a percent share of GDP. In all models, the ELE coefficient was higher than −1.5, ranging between −1.72 (Model 4) to −1.77 (Model 3). That is, in the years of general (or national) elections, budget deficits increased by more than 1.5% of GDP. More precisely, the increase was as high as 1.84% of GDP according to Model 1, 1.73%, 1.77%, 1.72% and 1.74% of GDP, respectively, according to Models 2, 3, 4, and 5. This effect is disproportionately high in comparison with other developed economies, where the effects of budget cycles have been estimated to be well below 1% of GDP (Andrikopoulos et al. 2004) and, in most cases, insignificant (Mandon and Cazals 2019).

We finally investigated the relationship between general elections (ELE) and changes over time in the growth rate of real GDP (DTYGR1) between 1974 and 2019. Descriptive statistics indicate that in non-election years, economic growth rates amounted to 0.82%, on average. On the contrary, in election years, the value of economic output decreased at a rate of 1.23% on average. This evidence suggests how the electoral cycle in Greece has serious destabilizing effects on total real output.

#### **4. Concluding Remarks**

The empirical results of our study demonstrate how severe political budget cycles have characterized Greece since 1974. These persistent political budget (or fiscal) cycles have contributed to the country's public debt. Moreover, the political budget cycles in Greece have played a destabilizing or pro-cyclical role, in terms of their effects on the country's real GDP. This is mainly due to the fact that the cycles materialize through an 'unproductive' public expenditures' increase, especially a rise in social transfers, during the election years (Petrakos et al. 2021d). It is therefore crucial to restrict political budget cycles, basically to improve the country's public finances and to stabilize the Greek economy—considering that the country had lost 30% of its real GDP between 2007 and 2020. Moreover, at the end of 2021, the gross debt of the general government in Greece had skyrocketed to 209% of its GDP, a magnitude more than two times higher than the corresponding average of the Eurozone (102% of GDP).

In addition, the existence of large political budget cycles suggests that certain sociopolitical characteristics in Greece—such as low-quality political institutions and insufficient control mechanisms or ineffective checks and balances—strongly resemble those of developing countries. These characteristics are basically the result of low-quality governance. Consequently, the effects of the electoral cycles cannot be ignored by any systematic scrutiny of the reforms needed to boost economic growth and to reduce budget deficits and public debt. Short-term performances of the external sector of the economy, namely, the balance of goods and services, were finally documented to affect the budget balance in Greece. Reduced external sector deficits and, more generally, a reduction in the balance of payments deficits, may contribute to the handling of budget deficits. Since the improvement of the trade balance is the result of the rising competitiveness of a given economic system, this should be a long-term objective of economic policy pursued through the implementation of specific strategies. Such issues are arguably among the most serious structural problems of the Greek economy and, as such, call for an effective and immediate policy response.

**Author Contributions:** Conceptualization, G.P. and I.V.; methodology, C.V. and K.R.; software, C.V. and L.S.; validation, I.V. and G.P.; formal analysis, C.V. and K.R.; investigation, L.S.; resources, I.V.; data curation, K.R.; writing—original draft preparation, I.V. and C.V.; writing—review and editing, K.R. and L.S.; visualization, G.P. and C.V.; supervision, I.V.; project administration, I.V. All authors have read and agreed to the published version of the manuscript.

**Funding:** This research received no external funding.

**Data Availability Statement:** The data presented in this study are available on request from the corresponding author.

**Conflicts of Interest:** The authors declare no conflict of interest.

#### **Notes**

#### **References**

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