MACROECONOMIC POLICY AND ELECTIONS IN OECD DEMOCRACIES*

Alberto Alesina,Nouriel Roubini,Gerald D Cohen

doi:10.1111/j.1468-0343.1992.tb00052.x

Alberto Alesina, Nouriel Roubini + Show 1 more

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https://doi.org/10.1111/j.1468-0343.1992.tb00052.x

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Abstract

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.

Highlights

1. lntroducthn Do politicians manipulate economic policy in order to win elections? For many economists, political scientists and laypeople, the answer to this question is obvious: they do! In a very influential paper, Nordhaus (1975) formalized and clarified the idea of an opportunistic "political business cycle." According to this model, politicians stimulate aggregate demand before elections in order to create fast growth and reduce unemployment
The purpose of this paper is to examine in detail the evidence of "political business cycle" (PBC) models on a large sample of 18 OECD economies using both the Nordhaus model and the new "rational" models as a guide to our study
Previous empirical findings suggest that partisan effects on both policy instruments and economic outcomes are quite widespread in OECD economies

Summary

Introduction

1. lntroducthn Do politicians manipulate economic policy in order to win elections? For many economists, political scientists and laypeople, the answer to this question is obvious: they do! In a very influential paper, Nordhaus (1975) formalized and clarified the idea of an opportunistic "political business cycle." According to this model, politicians stimulate aggregate demand before elections in order to create fast growth and reduce unemployment. In a very influential paper, Nordhaus (1975) formalized and clarified the idea of an opportunistic "political business cycle." According to this model, politicians stimulate aggregate demand before elections in order to create fast growth and reduce unemployment. As a reaction to these empirical rejections and partly in response to the "rational expectation" critique, in the late eighties a new generation of "rational political business cycles models" emerged. This line of research includes work by Cukierman and Meltzer (1987), Rogoff and Sibert (1988), and Rogoff (1990). 4) Inflation exhibits a post-electoral jump, which could be explained by either the pieelectoral "loose" monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes

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