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Elections and Macroeconomic Policy Cycles

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  • Rogoff, Kenneth
  • Sibert, Anne

Abstract

There is an extensive empirical literature on political business cycles, but its theoretical foundations are grounded in pre-rational-expectations macroeconomic theory. Here the authors show that electoral cycles in taxes, government spending, and money growt h can be modeled as an equilibrium signaling process. The cycle is dr iven by temporary information asymmetries that can arise if, for exam ple, the government has more current information on its performance i n providing for national defense. Incumbents cheat least when their p rivate information is either extremely favorable or extremely unfavor able. An exogeneous increase in the incumbent party's popularity does not necessarily imply a damped policy cycle. Copyright 1988 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 55 (1988)
Issue (Month): 1 (January)
Pages: 1-16

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Handle: RePEc:bla:restud:v:55:y:1988:i:1:p:1-16

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  1. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  2. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  4. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-38, June.
  5. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  6. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March.
  8. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  9. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  10. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December.
  11. Radner, Roy, 1985. "Repeated Principal-Agent Games with Discounting," Econometrica, Econometric Society, vol. 53(5), pages 1173-98, September.
  12. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-59, March.
  13. Stigler, George J, 1973. "General Economic Conditions and National Elections," American Economic Review, American Economic Association, vol. 63(2), pages 160-67, May.
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