Voting and the economic cycle

Abstract

Sophisticated voters assess incumbent competence by filtering out economic cycles (which they do not like) from trend growth (which they do). Naive voters on the other hand respond only to raw economic growth. This implies that voting in the aggregate should respond asymmetrically to the economic cycle. Upswings are rewarded by the naive, but punished by the sophisticated. Downswings are punished by all voters. Using an established dataset of over 400 general elections we find that the incumbent vote share (a) responds differently to trend growth than to the cycle, (b) does not respond significantly to positive variation in the economic cycle, and (c) responds significantly and negatively to negative realizations in the economic cycle. In contrast to standard formulations of the ‘grievance asymmetry’ this asymmetric vote response is found to be independent of trend growth.