Creative accounting and electoral motives: Evidence from OECD countries

Reischmann, Markus

doi:10.1016/j.jce.2015.07.001

Cited by 41 publications

(37 citation statements)

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“…Typically the residual is small, but occasionally it can be big. The literature has documented that creative accounting can inflate the residual near election time or when the economy enters a slump (Reischmann, 2016). In Europe, there is also evidence of a persistent positive residual in the nineties when EU rules kicked in (see Alt et al, 2014 for evidence on this point).…”

Section: Fiscal and Financial Factsmentioning

confidence: 99%

Financial and fiscal interaction in the Euro Area crisis: This time was different

Caruso

Reichlin

Ricco

2019

European Economic Review

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This paper highlights the anomalous characteristics of the Euro Area 'twin crises' by contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the business cycle fluctuations of the previous decades. We report three novel stylised facts. First, the contraction in output was marked by an anomalous downfall in private investment and an increase in households' savings, while consumption and unemployment followed their historical relation with GDP. Second, households' and financial corporations' debts, and house prices deviated from their precrisis trends, while non-financial corporations' debt followed historical regularities. Third, the jumps in the public deficit GDP and debt-GDP ratios in 2008-2009 were unprecedented and so was the fiscal consolidation that followed. Our analysis points to the financial nature of the crisis as a likely explanation for these facts. Importantly, the 'anomalous' increase in public debt is in large part explained by extraordinary measures in support of the financial sector, which show up in the stock-flow adjustments and reveal a key interaction between the fiscal and the financial sectors. AbstractThis paper highlights the anomalous characteristics of the Euro Area 'twin crises' by contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the business cycle fluctuations of the previous decades. We report three novel stylised facts. First, the contraction in output was marked by an anomalous downfall in private investment and an increase in households' savings, while consumption and unemployment followed their historical relation with GDP. Second, households' and financial corporations' debts, and house prices deviated from their pre-crisis trends, while non-financial corporations debt followed historical regularities. Third, the jumps in the public deficit-GDP and debt-GDP ratios in 2008-2009 were unprecedented and so was the fiscal consolidation that followed. Our analysis points to the financial nature of the crisis as a likely explanation for these facts. Importantly, the 'anomalous' increase in public debt is in large part explained by extraordinary measures in support of the financial sector, which show up in the stock-flow adjustments and reveal a key interaction between the fiscal and the financial sectors. JEL classification: C11, C32, C54, E52, E62, F45.

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Section: Fiscal and Financial Factsmentioning

confidence: 99%

Financial and fiscal interaction in the Euro Area crisis: This time was different

Caruso

Reichlin

Ricco

2019

European Economic Review

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“…Third, the governance structure of public sector entities will often differ considerably from a private corporation, leading to different costs and incentives. There may be short-term political incentives to cheat, particularly before elections, which outweigh longer-term detriments (Reischmann, 2016). There may be few with sufficient knowledge or incentives to monitor public sector financial statements in detail, so that the likelihood of getting caught is low.…”

Section: Public Sector Creative Accounting: the Broad And Focused Viewsmentioning

confidence: 99%

“…However, Seiferling (2013) found that there was no significant variance between SFA and fiscal transparency once controlled for banking crises, inflation and fiscal rules. There is some evidence that SFA increase in the year of elections (Buti et al, 2007), while Reischmann (2016), examining OECD countries up to 2011, found evidence that SFA are used strategically before regular elections to hide or reduce reported budget deficits.…”

Section: Reporting Deficits and Debt In The Context Of Emu And Sgpmentioning

confidence: 99%

How might harmonization influence the future prevalence of public sector creative accounting?

Hodges

2018

Tékhne

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This paper considers the significance of future harmonization on public sector creative forms of accounting (PSCA) in the context of both national accounting and government financial reporting. The analysis is carried out through a review of studies provided in the academic and official literatures. Examples are provided of PSCA in a ‘broad’ context of any manipulation of financial information and in a ‘focused’ context, referring to the reporting of deficit / surplus and associated levels of debt. The analysis is related to the influence of harmonization using the classification of information-manipulating behaviour drawn from Birnberg, Turopolec, and Young (1983). There is potential for accounting harmonization to improve the analysability of data to restrict PSCA. However, although many techniques of PSCA have been identified, the drivers and controllers of PSCA remain unclear. Accounting researchers should use their specialist understanding to draw out the differences between apparently consistent frameworks of accounting and to understand the policy effects and social implications of harmonization and related creative forms of accounting. There are relatively few studies of PSCA. This paper represents the first study that seeks to relate PSCA to the increasing tendency towards harmonisation of accounting in the public sector context. An agenda is included to guide researchers towards issues that are worthy of further consideration in this important area of study.

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“…11 If state governments change the constitution to comply with the debt brake, they indicate that they seriously want to consolidate their budgets. 12 Constitutional debt brakes may, however, still contain loopholes, for example, by leaving out special funds and public enterprises (Ciaglia et al, 2012;Heun, 2013;Reischmann, 2014Reischmann, , 2015.…”

Section: German Debt Brakementioning

confidence: 99%

Debt Brakes in the German States: Governments’ Rhetoric and Actions

Potrafke

Riem

Schinke

2016

German Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Primary deficits, however, hardly differed under leftwing and rightwing governments. Revenues of federal taxes were much higher than expected and facilitated budget consolidation. Leftwing governments did not need to run deficits to design generous budgets. It is conceivable that parties confirmed their identity by using expressive rhetoric, but responded to shifts in public opinion after the financial crisis and pursued more sustainable fiscal policies when in office. Terms of use: Documents inJEL-codes: D720, H600, H720.

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Creative accounting and electoral motives: Evidence from OECD countries

Cited by 41 publications

References 50 publications

Financial and fiscal interaction in the Euro Area crisis: This time was different

Financial and fiscal interaction in the Euro Area crisis: This time was different

How might harmonization influence the future prevalence of public sector creative accounting?

Debt Brakes in the German States: Governments’ Rhetoric and Actions

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