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Is the Political Business Cycle for Real?

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  • S. Brock Blomberg
  • Gregory D. Hess

Abstract

This paper constructs and examines a macroeconomic model which combines features from both real and political business cycle models. We augment a standard real business cycle tax model by allowing for varying levels of government partisanship and competence in order to replicate two important empirical regularities: First, that on average the economy expands early under Democratic Presidents and contracts early under Republican Presidents. Second, that Presidents whose parties successfully retain the presidency have stronger than average growth in the second half of their terms. The model generates both of these features that conform to U.S. Post World War II data.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2001/wp-cesifo-2001-01/cesifo_wp415.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 415.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_415

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Keywords: Political business cycle;

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References

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  1. Roubini, Nouriel & Alesina, Alberto, 1992. "Political Cycles in OECD Economies," Scholarly Articles 4553025, Harvard University Department of Economics.
  2. Alesina, Alberto & Sachs, Jeffrey, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 20(1), pages 63-82, February.
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  7. Hess, Gregory D & Orphanides, Athanasios, 1995. "War Politics: An Economic, Rational-Voter Framework," American Economic Review, American Economic Association, American Economic Association, vol. 85(4), pages 828-46, September.
  8. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  9. Plosser, Charles I, 1989. "Understanding Real Business Cycles," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 51-77, Summer.
  10. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  11. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
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  13. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
  14. S. Brock Blomberg & Gregory D. Hess, 1996. "Politics and exchange rate forecasts," Research Working Paper, Federal Reserve Bank of Kansas City 96-02, Federal Reserve Bank of Kansas City.
  15. Laurence Ball & N. Gregory Mankiw, 1994. "A Sticky-Price Manifesto," NBER Working Papers 4677, National Bureau of Economic Research, Inc.
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  20. S. Brock Blomberg & Gerald D. Cohen, 1994. "Scoring political economy models: a multiple equilibrium approach," Research Paper 9410, Federal Reserve Bank of New York.
  21. Ludvigson, Sydney, 1996. "The macroeconomic effects of government debt in a stochastic growth model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(1), pages 25-45, August.
  22. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
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  27. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  28. Alesina, A. & Londregan, J.A. & Rosenthal, H., 1990. "A Model Of The Political Economy Of The United States," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1990-27, Carnegie Mellon University, Tepper School of Business.
  29. Sachs, Jeffrey & Alesina, Alberto, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Scholarly Articles 4553026, Harvard University Department of Economics.
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  33. Persson, Torsten & Svensson, Lars E O, 1989. "Why a Stubborn Conservative Would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 325-45, May.
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  35. Christopher J. Waller, 1998. "Appointing the median voter of a policy board," Working Paper 9802, Federal Reserve Bank of Cleveland.
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Citations

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Cited by:
  1. Christian Bj�rnskov & Niklas Potrafke, 2012. "Political Ideology and Economic Freedom Across Canadian Provinces," Eastern Economic Journal, Palgrave Macmillan, vol. 38(2), pages 143-166.
  2. Christian Bjørnskov & Niklas Potrafke, 2013. "The Size and Scope of Government in the US States: Does Party Ideology Matter?," CESifo Working Paper Series 4246, CESifo Group Munich.
  3. Blomberg, S. Brock, 2000. "Modeling political change with a regime-switching model," European Journal of Political Economy, Elsevier, vol. 16(4), pages 739-762, November.
  4. Gernot Sieg & Irem Batool, 2012. "Pakistan, Politics and Political Business Cycles," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 51(2), pages 153-166.
  5. Burton Abrams & Plamen Iossifov, 2006. "Does the Fed Contribute to a Political Business Cycle?," Public Choice, Springer, Springer, vol. 129(3), pages 249-262, December.
  6. Kim, Iljoong & Kim, Inbae, 2008. "Interest group pressure explanations for the yen-dollar exchange rate movements: Focusing on the 1980s," Journal of the Japanese and International Economies, Elsevier, vol. 22(3), pages 364-382, September.
  7. Claudiu-Gabriel Tiganas & Claudiu Peptine, 2012. "Political Business Cycle And Economic Instability - Literature Review," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4, pages 853-865, December.
  8. Robert Grafstein & Kiki Caruson, 2008. "Surprise party," Public Choice, Springer, Springer, vol. 137(1), pages 315-328, October.
  9. J. Stephen Ferris, 2010. "Fiscal Policy from a Public Choice Perspective," Carleton Economic Papers 10-10, Carleton University, Department of Economics.

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