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Elections, Fiscal Policy and Growth: Revisiting the Mechanism

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Author Info
Economides, George
Philippopoulos, Apostolis
Price, Simon

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Abstract

This short paper reconsiders the popular result that the lower the probability of getting reelected, the stronger the incumbent politicians' incentive to follow short-sighted, inefficient policies. The set-up is a general equilibrium model of endogenous growth and optimal fiscal policy, in which two political parties can alternate in power. We show that re-election uncertainty is not enough to produce the popular result. Specifically, re-election uncertainty must be combined with the hypothesis that politicians care about economic outcomes more when in power than when out of power, and - more importantly - that this preference over being in power is ad hoc. That is, if politicians can also choose how much to care about economic outcomes when in and out of power, it is optimal to care the same and hence shortsighted policies do not arise. Therefore, such policies presuppose a degree of irrationality on the part of political parties.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 691.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_691

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Related research
Keywords: politics fiscal policy economic growth general equilibrium

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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

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.:

  1. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier. [Downloadable!] (restricted)
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  2. Devereux, Michael B. & Wen, Jean-Francois, 1998. "Political instability, capital taxation, and growth," European Economic Review, Elsevier, vol. 42(9), pages 1635-1651, November. [Downloadable!] (restricted)
  3. Torsten Persson & Gerard Roland & Guido Tabellini, 2000. "Comparative Politics and Public Finance," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1121-1161, December. [Downloadable!] (restricted)
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  4. Dixit, Avinash, 1991. "Analytical Approximations in Models of Hysteresis," Review of Economic Studies, Blackwell Publishing, vol. 58(1), pages 141-51, January. [Downloadable!] (restricted)
  5. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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(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. George Economides & Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2003. "Electoral Uncertainty, Fiscal Policies and Growth: Theory and Evidence from Germany, the UK and the US," Working Papers 2003_16, Department of Economics, University of Glasgow. [Downloadable!]
  2. Konstantinos Angelopoulos & George Economides, 2005. "Rent Seeking, Policy and Growth under Electoral Uncertainty: Theory and Evidence," DEGIT Conference Papers c010_029, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  3. George Economides & Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2003. "Electoral Uncertainty, Fiscal Policies & Growth: Theory and Evidence from Germany, the UK and the US," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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