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Electoral Uncertainty, Fiscal Policies & Growth: Theory and Evidence from Germany, the UK and the US

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Author Info
George Economides
Jim Malley ()
Apostolis Philippopoulos ()
Ulrich Woitek ()

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Abstract

In this paper we study the link between elections, fiscal policy and economic growth/fluctuations. The set-up is a dynamic stochastic general equilibrium model of growth and endogenously chosen fiscal policy, in which two political parties can alternate in power. The party in office chooses jointly how much to tax and how to allocate its total expenditure between public consumption and production services. The main theoretical prediction is that forward-looking incumbents, with uncertain prospects of re-election, find it optimal to follow relatively shortsighted fiscal policies, and that this lowers economic growth. The model is estimated using quarterly data for Germany, the UK and the US from 1960 to 1999. Our econometric results provide clear support for the main theoretical prediction. They also give plausible and significant estimates for the productivity of public production services, the weight which households place on public consumption services relative to private consumption and the time discount rate. Moreover, we find that changes in electoral uncertainty produce the longest lasting fluctuations in the European economies followed by the US.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1072.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1072

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Related research
Keywords: political uncertainty; economic growth and fluctuations; optimal policy;

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Find related papers by JEL classification:
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
H10 - Public Economics - - Structure and Scope of Government - - - General
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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  3. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November. [Downloadable!] (restricted)
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  6. Price, Simon & Sanders, David, 1994. "Economic Competence, Rational Expectations and Government Popularity in Post-War Britain," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 62(3), pages 296-312, September.
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  10. Lockwood, Ben & Philippopoulos, Apostolis & Snell, Andy, 1996. "Fiscal Policy, Public Debt Stabilisation and Politics: Theory and UK Evidence," Economic Journal, Royal Economic Society, vol. 106(437), pages 894-911, July. [Downloadable!] (restricted)
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  14. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March. [Downloadable!] (restricted)
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  23. 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. [Downloadable!] (restricted)
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  24. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Verstyuk Sergey, . "Electoral cycles in Ukraine," EERC Working Paper Series 02-209e, EERC Research Network, Russia and CIS. [Downloadable!]
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