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Partisan Business and Budget Cycles with Separate Fiscal and Monetary Authorities

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  • Ozkan, F Gulcin

Abstract

This paper studies partisan business and budget cycles in a setup where only fiscal policy is under the full control of the elected government, while an independent central bank makes monetary policy decisions. The government and the central bank are therefore engaged in a non-cooperative game. It is shown that a leftist government produces higher inflation, but contrary to the earlier results, lower output than a rightist government in all election and non-election periods. A leftist government also tax and spend more than a rightist government. The model produces both partisan business and budget cycles due to the timing of elections. Partisan budget cycles are a novel concept and are analyses of post-election fiscal movements as opposed to the pre-election analyses in political budget cycles literature. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School of Economic & Social Studies.

Volume (Year): 66 (1998)
Issue (Month): 2 (March)
Pages: 178-95

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Handle: RePEc:bla:manch2:v:66:y:1998:i:2:p:178-95

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  1. Alogoskoufis, George & Lockwood, Ben & Philippopoulos, Apostolis, 1992. "Wage Inflation, Electoral Uncertainty and the Exchange Rate Regime: Theory and UK Evidence," CEPR Discussion Papers 657, C.E.P.R. Discussion Papers.
  2. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  3. Lohmann, Susanne, 1993. "Electoral cycles and international policy cooperation," European Economic Review, Elsevier, vol. 37(7), pages 1373-1391, October.
  4. Ohlsson, Henry & Vredin, Anders, 1996. " Political Cycles and Cyclical Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 203-18, June.
  5. Douglas A. Hibbs, 1994. "The Partisan Model Of Macroeconomic Cycles: More Theory And Evidence For The United States," Economics and Politics, Wiley Blackwell, vol. 6(1), pages 1-23, 03.
  6. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  7. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
  8. Lindbeck, Assar, 1976. "Stabilization Policy in Open Economies with Endogenous Politicians," American Economic Review, American Economic Association, vol. 66(2), pages 1-19, May.
  9. Cukierman, Alex & Meltzer, Allan H, 1986. "A Positive Theory of Discretionary Policy, the Cost of Democratic Government and the Benefits of a Constitution," Economic Inquiry, Western Economic Association International, vol. 24(3), pages 367-88, July.
  10. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  11. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
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Cited by:
  1. Ozkan, F Gulcin, 2000. " Who Wants an Independent Central Bank? Monetary Policy-Making and Politics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 621-43, December.

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