Politico-Economic Determinants of Public Debt Growth: A Case Study for Austria

Based on a number of economic andparticularly politico-economic arguments,we examine the reasons for the growth ofthe central government's debt in Austriausing time series data for the period 1960 to 1999. Starting with an empiricaltest of Bohn's theory of sustainability offiscal policy, which is based on Barro'stax-smoothing model, we extend the model toaccount for several politico-economicvariables suggested by public choicetheories. Keynesian stabilization policyobjectives, influences of ideology andpolitical parties, the form of governmentand the political business cycle are testedregarding their ability to explain thegrowth of public debt in Austria. There issome empirical evidence for systematicinfluence of government behavior inaccordance with recent public choicetheories. However, it seems that the mostimportant influence on Austrian fiscalpolicy is the unemployment rate, which has asignificant influence on the decisions madeby policy-makers. Concluding, we brieflydiscuss the implications of these resultsfor the prospects of reducing public debtin Austria in the near future.