The relationship between public debt and privatisation: the moderating roles of political ideology and electoral cycles

Abstract

Using a sample of 25 European countries between 1995 and 2013, this study shows a bidirectional relationship between privatisations and public debt. Firstly, our findings suggest that governments with higher levels of debt tend to privatise state-owned enterprises (SOEs) to a greater extent than less-indebted governments. Subsequently, the results show that privatisations effectively reduce indebtedness. This means that causality between privatisation and public debt should be considered in future studies. In addition, we have found that such a strategy is used more by right-wing governments, which implies the existence of partisan effects. However, our findings do not support any effect caused by electoral cycles.

Keywords

• Privatisation
• Public Debt
• Indebtedness
• Ideology
• Elections
• Electoral Cycles