Austrian public debt growth: A public choice perspective

Sustainability of public deficit and debt in the long run has received much attention in the international political agenda. This paper analyzes whether Austrian fiscal policies have been sustainable during the last five decades. Tests indicate that Austrian fiscal policies were sustainable from 1960 to 1974, while from 1975 on public debt grew much more rapidly. Starting in 1975, the rate of unemployment played a significant role in the sense of a counter-cyclical orientation of Austrian fiscal policy as part of the concept of “Austrokeynesianism”.  The development of public debt in Austria seems to be driven not primarily by ideology, but by structural causes and a shift of the budgetary policy paradigm. There is some empirical evidence that governments in Austria dominated solely by one party run deficits that are higher than those formed by coalitions of the two large parties or especially of the two conservative parties in Austria. There is clear evidence that the government consisting of the two conservative parties has been running significantly lower deficits than all other governments in Austria. Moreover, there is some empirical indication that the participation of the Social Democrats in government increases the primary deficit. Yet, the influence of such participation is much smaller than that of the change of the paradigm of budgetary policy regarding significant reactions to the unemployment rate.  Thus, the development of public debt in Austria seems to be driven not primarily by ideology, but structural causes and the change in the budgetary policy paradigm (primarily in the sense of “Austrokeynesianism”) are the main driving forces. There are no indications of a political budget cycle in Austria in the period 1960 to 2012, which is in line with most previous empirical work for Austria.