Externalities and the Political Business Cycle

Abstract

Political business cycle theories in modelling the interaction between the polity and the economic system have continually failed to consider questions of economic and political interdependence between nations. In considering the current principal political business cycle models we ask how the reality of integrated economies affects the implications of these models. This is particularly important given the direction of the European Union (EU). The purpose here is to generate a series of hypotheses for future research and for empirical analysis and to show the short-comings of political business cycle models that are purely domestically-focused.