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Human Capital and Political Business Cycles

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  • Akhmed Akhmedov

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    (CEFIR)

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    Abstract

    Classical theory considers political business cycle as a result of either opportunistic behavior of government (opportunistic cycle) or aiming policy on certain constituency (partisan cycle). In this paper, we propose an alternative explanation of the phenomenon of political business cycle — experience of government. We propose an illustration that shows that elections infer cycles without any opportunism or ideology of incumbents. We also build a model with endogenous ego-rent. The model explains a channel to increase incentives, when none has commitment — governors need to develop skills to increase their value for public and increase probability to get re-elected. Using fiscal monthly data of Russian regions from 1996 to 2004, we got evidence both of positive effect of experience on performance and opportunistic component of the cycle. We also got evidence of diminishing return on experience.

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    Bibliographic Info

    Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0087.

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    Length: 29 pages
    Date of creation: Oct 2006
    Date of revision:
    Handle: RePEc:cfr:cefirw:w0087

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    Keywords: Elections; opportunistic business cycle; experience; sunk cost; Russian regions.;

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