Politico‐economic Models in Competition with Alternative Models: Which Predict Better?*

Abstract

ABSTRACTEmpirically estimated politico‐economic models which study the interdependence between the economy and the polity are confronted with competing models using the hard test of ex ante forecasts. The politico‐economic models in which the government is taken to act in a political framework (it wants to be reelected and to put its ideology into action) yield superior forecasts compared to the models in which a ‘benevolent dictator’ government directly reacts to macroeconomic conditions. These results suggest that political influences are indeed important and can be adequately analysed in the framework of politico‐economic models.