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Macroeconomic Policy and Elections in OECD Democracies

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  • Cohen, Gerald
  • Alesina, Alberto
  • Roubini, Nouriel
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    Abstract

    The purpose of this paper is to test for evidence of opportunistic "political business cycles" in a large sample of 18 OECD economies. Our results can be summarized as follows: 1) We find very little evidence of pre-electoral effects on economic outcomes, in particular, on GDP growth and unemployment; 2) We see some evidence of "political monetary cycles," that is, expansionary monetary policy in election years; 3) We also observe indications of "political budget cycles," or "loose" fiscal policy prior to elections; 4) Inflation exhibits a post-electoral jump, which could be explained by either the pre-electoral "loose" monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.

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    File URL: http://dash.harvard.edu/bitstream/handle/1/4553023/alesina_macroeconomicoecd.pdf
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    Bibliographic Info

    Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4553023.

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    Date of creation: 1992
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    Publication status: Published in Economics & Politics
    Handle: RePEc:hrv:faseco:4553023

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    1. Ito, Takatoshi, 1990. "The timing of elections and political business cycles in Japan," Journal of Asian Economics, Elsevier, vol. 1(1), pages 135-156.
    2. Tabellini, Guido & Alesina, Alberto, 1990. "Voting on the Budget Deficit," Scholarly Articles 4553030, Harvard University Department of Economics.
    3. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
    4. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
    5. Benjamin M. Friedman & Kenneth N. Kuttner, 1989. "Money, Income and Prices After the 1980s," NBER Working Papers 2852, National Bureau of Economic Research, Inc.
    6. Alesina, A. & Londregan, J.A. & Rosenthal, H., 1990. "A Model Of The Political Economy Of The United States," GSIA Working Papers 1990-27, Carnegie Mellon University, Tepper School of Business.
    7. Alesina, Alberto & Roubini, Nouriel, 1992. "Political Cycles in OECD Economies," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 663-88, October.
    8. David S. Bizer & Steven N. Durlauf, 1990. "Testing the Positive Theory of Government Finance," NBER Working Papers 3349, National Bureau of Economic Research, Inc.
    9. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    10. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
    11. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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