A Political Model of the Business Cycle

The aim of the research is to show the relationship between political parties and voters and its impact on economic situation in the pre and post-election period. The paper points out the interaction between economics and politics, the behaviour of an individual in the economic and political market and analyses the economic models that study the response of voters to different political programmes. An overview of all political elections in the Republic of Serbia since 2000 and the inflation and unemployment rates during the same period is also provided in order to confirm the hypothesis that inflation and unemployment in the pre-election period are in the function of political interests, while in the post-election period they return to their initial level. Uticaj političkih ciklusa na inflaciju i nezaposlenost Apstrakt: Cilj istraživanja je da ukaže na relaciju između političkih stranaka i birača i njene posledice na stanje u privredi u predizbornom i posleizbornom periodu. Rad ukazuje na interakciju ekonomije i politike, ponašanje pojedinca na ekonomskom i političkom tržištu i analizira ekonomske modele koji proučavaju reagovanje glasača na različite političke programe. Osvrt na

Industrija, 2015

The aim of the research is to show the relationship between political parties and voters and its impact on economic situation in the pre and post-election period. The paper points out the interaction between economics and politics, the behaviour of an individual in the economic and political market and analyses the economic models that study the response of voters to different political programmes. An overview of all political elections in the Republic of Serbia since 2000 and the inflation and unemployment rates during the same period is also provided in order to confirm the hypothesis that inflation and unemployment in the pre-election period are in the function of political interests, while in the post-election period they return to their initial level.

2012

This thesis comprises of three research studies undertaken on three important topics of political economics. The first paper (chapter 2) ``Bread and the attrition of power: Economic events and German election results'' has analyzed the German's voting behavior in response to the economic situations prevailing during the postwar period 1953-2005. This paper has been a modified and extended version of the Hibbs ``Bread and Peace Model'' and result shows that real per capita disposable income growth is the only economic variable that explains the incumbent aggregate vote share in Germany. The second paper (chapter 3) ``Pakistan, Politics and Political Business Cycles'' relates to Pakistan's experience in terms of politics, economics and political business cycles. This paper investigates the presence of political business cycles in various macroeconomic indicators during the period 1973-2009. The third paper (chapter 4) ``Pakistan Central Bank Independenc...

Economics & Politics, 1992

The purpose of this paper is to test for evidence of opportunistic “political business cycles” in a large sample of 18 OECD economies. Our results can be summarized as follows: 1) We find very little evidence of pre‐electoral effects on economic outcomes, in particular, on GDP growth and unemployment; 2) We see some evidence of “political monetary cycles,” that is, expansionary monetary policy in election years; 3) We also observe indications of “political budget cycles,” or “loose” fiscal policy prior to elections; 4) Inflation exhibits a post‐electoral jump, which could be explained by either the pre‐electoral “loose” monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.

European Journal of Political Economy, 1991

NBER/Macroeconomics Annual, 2000

Research on the political business cycle since the mid-1970s is surveyed and assessed. We argue that models based on monetary surprises as the driving force are unconvincing explanations of either opportunistic or partisan cycles. Research should concentrate on fiscal policy as the driving force, with monetary effects being the result of accommodation of fiscal impulses. We present a model political business cycle model that combines active fiscal policy and passive monetary policy (which we term the AFPM model), which addresses a number of objections to earlier models. I wish to thank my discussants, Alberto Alesina, Carl Walsh, conference participants and seminar participants at the Hebrew University of Jerusalem and the Bank of Israel for helpful comments, and Stefan Hubrich for extraordinarily able research assistance and many very useful discussions.

NBER Macroeconomics Annual, 2000

American Political Science Review, 2012

Studies of Organisation for Economic Co-operation and Development (OECD) countries have generally failed to detect real economic expansions in preelection periods, casting doubt on the existence of opportunistic political business cycles. We develop a theory that predicts that a substantial portion of the economy experiences a real decline in the preelection period if the election is associated with sufficient policy uncertainty. In particular, policy uncertainty induces private actors to postpone investments with high costs of reversal. The resulting declines, which are called reverse electoral business cycles, require sufficient levels of polarization between major parties and electoral competitiveness. To test these predictions, we examine quarterly data on private fixed investment in ten OECD countries between 1975 and 2006. The results show that reverse electoral business cycles exist and as expected, depend on electoral competitiveness and partisan polarization. Moreover, simp...

Economic Inquiry, 1990

Political models of the business cycle have typically been ignored because they appear inconsistent with rational behavior and because empirical evidence is inconclusive. This paper addresses the second issue, demonstrating for U.S. real GNP, unemployment, and inflation that electoral cycles (persistent patterns across electoral terms) are significant, but apparently only for Republican incumbents, and that partisan cycles (persistent differences between

Southern Economic Journal, 1998

Empirical research of political business cycles (PBCs) may suffer from endogeneity bias when incumbent governments have discretion to call for an early election. Using an instrumental variable (IV) routine on data from Japan and the U.K., we find strong evidence to support the notion that election timing is a function of the economy rather than the macroeconomy being driven by elections as assumed in PBC. In single-equation regressions, no evidence of political cycles are found, but Hausman tests suggest elections are endogenous in our regressions. A monetary cycle in Japan and an inflation cycle in the U.K. are uncovered through IV estimation.