Political Business Cycle Research Articles

In pursuit of power: Land tenancy contracts and local political business cycles in Indonesia

This study examines whether strategic delegation of land tenancy contracts is linked to local-level political business cycles in the context of a village institution – bengkok land – prevalent since the Dutch colonial rule in Indonesia. Bengkok land refers to communal village land that incumbent village heads receive usufruct rights over until their term in the office ends. We test whether incumbent village heads utilize time-bound access to bengkok land for political consolidation. Based on a novel cross-sectional household survey fielded in 2018 across 130 Javanese villages, we find robust evidence of a positive correlation between the percentage of total tenancy contracts as sharecropping and proximity (before or after) to the village election. As vulnerability of the sharecroppers makes them a pro-poor target for the incumbent village heads, these results implicate political capture.

The Five-Year Plan and target allocation cycle of environmental pollution in China

Summary This paper establishes a theoretical connection between China’s Five-Year Plan (FYP) and environmental pollution. We propose a target allocation cycle theory to explain the periodic feature of environmental pollution, which advances political business theory in different institutional contexts. By analysing industrial SO2 and PM2.5 data as well as the political career data of officials in 277 Chinese cities from 2003 to 2019, we reveal a significant influence of China’s political business cycles, as dictated by the FYP, on the periodicity of environmental pollution. Specifically, the emissions of industrial SO2 and PM2.5 exhibit a U-shaped periodic trend, peaking during the initial 2 years of each FYP, followed by a gradual decline in subsequent years, only to peak again in the first year of the succeeding FYP. These findings suggest that local political leaders strategically allocate their efforts in managing environmental pollution. Initially, there is a relaxation of environmental regulation during the early stages of a FYP, which is then followed by a shift towards more stringent environmental governance after the midpoint of the FYP.

Политико-экономическая теория популизма

The paper presents a cross-disciplinary theory of populism. The first part of the article considers a definition of populism, the main electorate of populist forces, and the economic triggers of protest votes for populist parties. The second part deals with the different types of political populism, the reasons for their actualization in the 21st century, and the institutional consequences of populist power. The demand for populism comes from fragmented social groups that lost out in the social transformations following the neoliberal revolution of the 1970s and experienced the negative shocks of globalization. The protest electorate is organized around charismatic leaders who find 'scapegoats' in the form of traditional elites, migrants, or minorities and claim to speak for the «nation». Populism can contribute to democratization in its early stages. However, once in power, populists tend to undermine the system of checks and balances, leading to a decline in the quality of institutions and a slowdown in economic growth. The third part of the paper assesses the impact of economic populism. It is concluded that the definitional approaches used in academic literature do not meet the requirement of universality and do not imply a sufficient level of operationalization necessary for empirical research. An alternative approach is proposed that develops the «classical» definition of R. Dornbusch and S. Edwards: economic policy aimed at provoking economic shocks in order to increase the political ratings of the authorities and downplaying socio-economic risks. This approach enables economic populism to transcend the ideological framework of «right-left» economic policy, separate it from the economic policy of political populists, and evaluate the populist policies of mainstream parties. The theory of economic populism converges with the theory of political business cycles, but is not limited to elections and focuses on assessing demand rather than supply.

Foreign Election Interference in Africa’s De-Democratization Culture

The 2016 USA elections appear to have made Russia the “poster-boy” for election interference across the globe, allegedly using tools such as disinformation, misinformation, mal-information, email hacking, leaking of confidential information, and others. All such activities are a threat to national self-determination, democracy, and the autonomy of the people. Since then, elections in developing democracies in Africa are also alleged to have experienced interference by the usual suspect: Russia. In Africa, the actors of election interferences have been expanded beyond Russia to include foreign countries and companies in past elections in Kenya, Madagascar, Mozambique, Nigeria, and Ghana. The next general elections in Ghana are in December 2024. In the previous general elections in Ghana, there were no significant allegations of election interference, although, in 2020, the specter of foreign election interference emerged in the political discourse. The actions of the domestic actors to de-democratize elections were mentioned selectively. It may be simplistic to argue in favor of election non-interference in Ghana’s political business cycle every four years since 1992, but the allegations are not supported by evidence and are merely anecdotal and subjective or based on geopolitical realism. What can be proven is the de-democratization of incumbents and other domestic political actors in domestic elections through open vote-buying by politicians and vote-rigging by incumbent political leaders. In such a political dysmorphic situation, it is difficult to accuse any entity of being the mastermind of election interferences in Africa.

THE MONETARY-OPPORTUNISTIC NORDHAUS MODEL IN TARGETS OF POLITICAL BUSINESS INFLATION CYCLES

Political business cycles reflect the imperfections of democratic institutions and are accompanied by electorally motivated interventions by governments in macroeconomic processes of redistribution of gross national product. This is fraught with potential conflict between political and economic reforms, in particular, hindering the implementation of current development programs aimed at reducing the deficit, curbing money supply growth and inflation, and liberalizing currency regimes and capital markets. This results in overestimated expectations of economic actors regarding the improvement of social welfare, loss of confidence in monetary authorities, and rising inflation. The purpose of the article is to analyze the monetary-opportunistic Nordhaus model in targeting political business cycles of inflation, as well as the impact of economic determinants of cyclicality on monetary policy.

Political Business Cycles in Türkiye: A Chaotic Perspective

AbstractThis paper has the goal of analyzing the chaotic structure of political business cycles in Türkiye for the period from 1986 March to 2020 January. To investigate the existence of uncertainty, the chaotic dynamics of the analyzed variables was examined using the Lyapunov exponent, Shannon entropy, and Hurst entropy. The Fourier VAR model was applied to determine the effects of unemployment, inflation, economic growth, and the minimum wage on voting behavior in Türkiye. The Granger Causality approach was also used to assess the direction of the causal relationship between macroeconomic factors and political party groups. Granger causality analysis findings of this paper reveal a bi-directional Granger causality link between the center-right party and economic growth, inflation, unemployment, and the minimum wage. Furthermore, there is also a uni-directional causality relation from inflation, unemployment, and economic growth to the center-left party and a bi-directional causality relation between the minimum wage and the center-left party. In this regard, one of the most remarkable evaluations of this paper is that the sensitivity findings of party groups to macroeconomic factors in Türkiye do not align with the core assumptions of the Partisan Theory concerning the right-left party division. Therefore, contrary to the related theory, the analysis results indicate that it is not eligible to make a sharp and distinct distinction between right-wing and left-wing parties in Türkiye. Additionally, Lyapunov exponent, Shannon entropy, and Hurst entropy findings point to the existence of chaotic structure and uncertainty in political cyclical fluctuations in Türkiye. Accordingly, it is figured out that the existence of chaotic structure and uncertainty in party groups and analyzed variables allows only short-term and not long-term forecasting.

The political business cycle of tax reforms

A political business cycle (PBC), with governments adjusting and timing economic policy for electoral gains, has long been hypothesized. A lack of data has so far limited testing of this phenomenon for government policies as opposed to fiscal outcomes such as tax revenue or government deficit, especially at the national level. We use new monthly data on tax reform announcements for a set of 22 democracies, 1988–2014, to test the PBC hypothesis for taxation. In addition to the traditional electoral strategy formulation of the PBC, we also put forward and test a capacity version of the PBC. We find evidence for the capacity version but not the traditional version of the PBC: tax reforms are less likely to be announced before elections and more likely after elections, independently of whether they are increases or decreases. Our evidence suggests that while a PBC exists, it may be less driven by strategic electioneering and more innocuous than previously assumed.

Political Business Cycle: The Case of Mexico

Political Business Cycle: The Case of Mexico

Non-political Factors of Multi-term Incumbency in the Governance Process of Staying in Power in Poland. Selected Cases of Mayors

Acquiring and retaining of power is one of the main research areas in political science. Multi-term has been the subject of numerous analyses in the field of political science. The authors of this article have chosen to explore this area interdisciplinarily – in socio-economic terms. The aim of this article is to explore the potential links between multi-term incumbency and selected non-political factors that may be important in the process of managing mayors’ Staying in power. The main research question corresponds closely to the aim of the article, and the specific research questions are: are there relationships between mayoral multi-term incumbency and factors such as own income, investment expenditure and unemployment? Furthermore, in the process of managing staying in power, do governors use tools related to the so-called “political business cycle”? In this study, the comparative method and elements of the quantitative method – to analyse structure and dynamics – were applied; a comparison of the selected factors was made in 13 selected medium-sized cities in Poland, where the mayor has been in power continuously since at least 2002. The analyses carried out show that the cities’ own income co-varies with multi-term incumbency in the surveyed units, while investment expenditure and unemployment levels are unrelated to the mayors’ staying in power. In addition, the authorities were unlikely to use tools linked to the political business cycle.

Lending behaviour, political environment and systemic banking crisis in developing economies

The paper examines the impact of bank lending behaviour and political events (i.e., election cycles) on the predicted probability of a systemic banking crisis in developing countries. Using an instrumental variable probit regression for a panel dataset of 137 developing countries over the period 2004–2020, the study found that beyond the estimated thresholds for bank lending, which ranged from 0.2804 to 0.6513, a systemic banking crisis is likely to occur. The study shows that average bank lending increases the likelihood of a systemic banking crisis around election episodes, but it decreases the likelihood of a systemic banking crisis a few years before and after an election. Based on marginal effects, the study found that the negative impact of average bank lending on the likelihood of a systemic banking crisis reverses or diminishes during an election year, but the impact amplifies immediately after the election. The study provides evidence to support that the average bank lending behaviour during the upturn phases of political business cycle reduces the likelihood of a systemic banking crisis, while the average bank lending behaviours during the downturn phases of political business cycle lead to a banking crisis over the electoral cycles.

Political Aspects of Full Employment: Eight Decades On

ABSTRACT The contribution and continuing relevance of Kalecki’s paper on ‘Political aspects of full employment’ on the 80th anniversary of its publication is the central topic. There are five sets of important and interrelated ideas in Kalecki’s paper. Full employment was feasible under capitalism from the perspective of securing a high level of demand through government spending. There would be resistance, particularly from business and finance to prolonged full employment, and there are political and social constraints on long-term full employment. Fascism had secured full employment through its relationships with big business and reducing the political obstacles. A political business cycle with full employment achieved at best at the top of the cycle could be generated. The role of ‘fundamental reforms’ in sustaining full employment under capitalism, and the ‘fate’ of fundamental reforms is reviewed.

행동과학의 렌즈로 재조명한 정치적 경기순환론

The political business cycle theory demonstrates that incumbent politicians opportunistically manipulate macroeconomic business cycles such as inflation or unemployment to further their chances of re-election. Since Nordhaus’s (1975) pioneering model on the topic, both economists and political sciences have long examined the interdependence of political and macroeconomic outcomes within various contexts. Notwithstanding the promise of the theory of political business cycle, less attention has been paid to its theoretical assumptions—voters’ formation of the image for the incumbent and the durational effect of political manipulation of macroeconomic variables. Drawing insights from behavioral science, this study examines how macroeconomic outcomes in the election year affect the percentage of votes in the next election year in the Korean local government contexts. Findings suggest that the assumptions of political business cycle theory need to be expanded to enhance its theoretical development and practical applications.

Political business cycle and bank liquidity creation in Ghana: the role of financial sector transparency

ABSTRACT This study examines how financial sector transparency (FST) administered through credit information sharing helps reduce the BLC growth induced by PBC in an emerging economy in Africa. The study employs twenty-seven 27 banks in Ghana over three (3) different political election cycles between 2006 and 2016. The results are estimated using robust random effect panel models with technological and year effect controls. The results shows that (i) PBC increases liquidity creation by banks, (ii) FST administered through credit information sharing encourages BLC, (iii) the joint term of PBC and FST yields a negative synergetic effect on BLC and (iv) promoting FST dampens the growth in liquidity creation induced by PBC in Ghana. These results imply that bank managers, regulators and policymakers must be mindful of liquidity creation especially during election periods since it can lead to soaring credit defaults and losses. Also, FST can be used as tool for suppressing growth in liquidity creation induced through PBC by help banks screen out bad political dealings and politicians.

How Electoral Cycles Shape the Implementation of Public Works Programs: Evidence From India

Why do public works programs in developing democracies often experience implementation failures at the local level? Building on the literature on political business cycles, our study sheds light on a key explanation. We argue that electoral cycles undermine the completion of public works projects because of incumbents’ difficulties in reaping electoral rewards for following through on projects proposed just prior to an election. Analyses based on project-level data from a nation-wide public program in India supports the argument. We find that projects proposed close to an upcoming election are less likely to be eventually completed than projects proposed at other times. We further find that incumbent turnover exacerbates the effect of electoral cycles and that this modifying effect is plausibly causal. The results suggest that new incumbents have reduced incentives to follow through on projects proposed by their predecessors due to the difficulties involved with claiming credit for such projects.

Political Aspects of Full Employment in Retrospect

Abstract Kalecki’s ‘Political Aspects of Full Employment’ is a classic work of political economy, showing how full employment may be obtained by fiscal policy. However, full employment challenges key institution of capitalism, in the labour market evoking resistance from business and finance and the possibility of a political business cycle. The paper compares Kalecki’s vision of full employment with that of Keynes and the contribution of mass unemployment to fascism. The paper argues that Kalecki saw full employment as a transition to socialism.

오스트리아학파 경기순환론에 대한 공공선택학파의 대응

Since Mises’ advocacy and Hayek’s refinement, ABCT(Austrian Business Cycle Theory) has been well formulated and showed valid explanation on actual economic business cycles as well. This article reveals how Public Choice responded to ABCT and how they developed its own ideas on business cycle. Gordon Tullock criticized Rothbardian sense of ABCT, followed by severe response from Sallerno. Some essential points on this argument were extracted to compare the basic difference of Tullock and Rothbard. ABCT activates business cycle when gov’t(central bank) ‘artificially’ lower the interest rate. Public Choice theorists focus on ‘why’ they do that. For ABCT, whether or not they have good intention is not important. PBCT, however, more emphasize that was done for the selfish political interests that politicians or bureaucrats have in political context. Austrians suggested new meaning to ‘bust’ phase of economic cycle, which under neo-classcical economics school long have been ignored as ‘bad’ event. ABCT assumes two key concepts; heterogeneity of capital, and mal-investment. PBCT is unfamiliar to those. So PBCT frequently does not identify the difference between over-investment and mal-investment, and assumes homogeneity of capital. It’s because Public Choice stands on neo-classical economics, not Austrian sense of economics. Then, four political business cycle theory(PBCT) models were reviewed: Opportunistic, Partisan, Rational Opportunistic, and Rational Partisan model. Austrians focusing on market process met Public Choice Theorists focusing political market met on the theme of business cycle. ABCT shows how ‘visible hand’ gives impact on market economy, and PBCT shows what impact business cycle has to political market. Each mutually gives sound tension, plus contributes to complementary explanation on overall business cycle.

What type of central banker dampens the political business cycle? The case of Africa

AbstractThis article investigates the extent to which central bank independence can help to reduce political business cycles in Africa. Like previous studies, we find evidence of political cycles in our sample of 34 African countries for the period 1980–2018, but our findings show that politicians' ability to manipulate both fiscal and monetary policy depends on the degree of alliance between the fiscal authority and the monetary authority. Indeed, our analysis reveals that the political business cycle worsens when the central banker is an ally whereas a non‐ally central banker is associated with a decrease in the ability of the incumbent government to induce opportunistic political cycles, and this result holds, regardless of whether an African country is classified as a democracy or a dictatorship. In addition to that, despite the theoretical argument that political business cycles are unlikely to exist in dictatorships, we find evidence that both political budget and monetary cycles are prevalent in African dictatorships.

Economics of Regaining Office: The Case of Pakistan (1947-2005)

Political business cycle (PBC) can be defined as fluctuations in the economy due to an attempt of a government to manipulate the economy prior to elections for favourable outcomes i.e. regaining its office. The concept of policy cycles gained a good deal of attention by the economists during mid 70s. Though most of the researchers attribute the PBC theory to Schumpeter (1939) and Kalecki (1943) but the seminal work in the theory of PBC is Nordhaus (1975).

State Revenue Policy and Election: Are All Taxpayers Equal?

ABSTRACT Political Business Cycle (PBC) models illustrate that government fiscal outcomes are driven by the private interests of incumbent policymakers who shape fiscal policy in pursuit of the popular vote. While the existing PBC studies tend to focus on influences on the overall budget size, this study posits that PBC also targets specific groups that can be distinguished by their size and associated tax bases. This research, using fiscal data of state governments in the US between 1979 and 2019, provides evidence that the conventional PBC patterns apply to the general public standing for the broad-based revenues, whereas the narrow-based revenues for the interest groups, businesses, and industries remain unaffected.

Political Business Cycle in Local Governments in Transition and Developing Economies. Literature Review and Empirical Study for Poland

Theory of political business cycles in democratic systems indicates that politicians have an incentive to operate with different economic instruments to acquire voters or secure re-election. Such phenomena also take place on the local government level, with incumbents manipulating the scale of expenditures, investments, or the amount of debt raised before elections. In this article, we focus on the analysis of local government investment as it is one of the most flexible parts of the budget so there is a strong incentive to use it as an election support instrument. Based on the panel data for the three full electoral cycles in Poland, we check the existence of the relationship between investment budget sizes and the phase of the electoral cycle. The results of the analysis show that even as a single explanatory variable, the election cycle is a significant factor explaining the behaviour of local public investments. It causes fluctuations of local investments by over 20% around their average level. This confirms the existence of a strong political budget cycle in Polish local governments. As this also provides evidence of political rent seeking, our findings provide a general rationale for limiting the number of office terms for incumbents in local authorities.