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Electoral Uncertainty, Fiscal Policy and Macroeconomic Fluctuations

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

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Abstract

In this paper we study the link between elections, fiscal policy and aggregate fluctuations. The set-up is a stylized dynamic stochastic general equilibrium model incorporating both technology and political re-election shocks. The later are incorporated via a two-party model with elections. 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 hurts capital accumulation. Our econometric estimation, using U.S. data, finds a statistically significant link between electoral uncertainty and policy instruments and in turn macroeconomic outcomes.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1593.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1593

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Related research
Keywords: political uncertainty business cycles & growth optimal policy hybrid maximum likelihood estimation

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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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  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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  12. Economides, George & Philippopoulos, Apostolis & Price, Simon, 2003. "How elections affect fiscal policy and growth: revisiting the mechanism," European Journal of Political Economy, Elsevier, vol. 19(4), pages 777-792, November. [Downloadable!] (restricted)
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  16. 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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Full references

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. Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2007. "Rent-seeking competition from state coffers in a calibrated DSGE model of the euro area," Working Papers 2007_29, Department of Economics, University of Glasgow. [Downloadable!]
  2. Peter N. Ireland & Scott Schuh, 2006. "Productivity and U.S. Macroeconomic Performance: Interpreting the Past and Predicting the Future with a Two-Sector Real Business Cycle Model," Boston College Working Papers in Economics 642, Boston College Department of Economics. [Downloadable!]
    Other versions:
  3. George Economides & Hyun Park & Apostolis Philippopoulos, 2007. "How should the government allocate its tax revenues between productivity-enhancing and utility-enhancing public goods?," Working Papers 2007_40, Department of Economics, University of Glasgow. [Downloadable!]
  4. Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2007. "To React or Not? Fiscal Policy, Volatility and Welfare in the EU-3," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  5. Peter N. Ireland, 2006. "Changes in the Federal Reserve's Inflation Target: Causes and Consequences," NBER Working Papers 12492, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Konstantinos Angelopoulos & Jim Malley & Apostolis Philippopoulos, 2007. "Public Education Expenditure, Growth and Welfare," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  7. Konstantinos Angelopoulos & George Economides, . "Fiscal Policy, Rent Seeking and Growth under Electoral Uncertainty Theory and Evidence from the OECD," Working Papers 2007_28, Department of Economics, University of Glasgow, revised Apr 2008. [Downloadable!]
  8. Peter N. Ireland, 2007. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," Boston College Working Papers in Economics 662, Boston College Department of Economics. [Downloadable!]
    Other versions:
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