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A theory of political cycles

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Author Info
Leonardo Martinez
Abstract

The literature on political cycles argues that the proximity of elections affects policy choices. This literature considers that opportunistic policymakers manipulate policy to increase their reelection probability. Previous theoretical studies assume that the policymaker can affect his reelection probability only with his last decision before the election. This assumption seems extreme, and directly produces a cycle without presenting a theory of why a policymaker's behavior is different closer to the election. We shall explain how, without this assumption, existing political-agency models can still produce cycles. In contrast to previous (theoretical and empirical) studies, we consider how the policymaker's decisions depend on his reputation (the beliefs about his future performance). Since the policymaker's reputation most likely changes over time, in general, one cannot conclude from observing the same behavior throughout the policymaker's term that the proximity of elections does not affect policy choices. Consequently, our findings suggest reinterpreting previous empirical results and controlling for changes in reputation in future empirical studies. More generally, our results deepen the understanding of agency relationships in which the agent's compensation is decided infrequently.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 05-04.

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Date of creation: 2005
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Handle: RePEc:fip:fedrwp:05-04

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Keywords: Political science

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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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(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. Allan Drazen & Marcela Eslava, 2006. "Pork Barrel Cycles," NBER Working Papers 12190, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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