Political Price Cycles in Regulated Industries
AbstractThis paper develops a model of political regulation in which politicians set the regulated price in order to maximize electoral support by signaling to voters a pro-consumer behavior. Political incentives and welfare constraints interact in the model, yielding an equilibrium in which the real price in a regulated industry may fall in periods immediately preceding an election. The paper also provides empirical support for the theoretical model. Using quarterly data from 32 industrial and developing countries over 1978-2004, we find strong statistical and econometric evidence pointing toward the existence of electoral price cycles in gasoline markets.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 06/260.
Date of creation: 01 Nov 2006
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-06 (All new papers)
- NEP-CDM-2007-01-06 (Collective Decision-Making)
- NEP-COM-2007-01-06 (Industrial Competition)
- NEP-ENE-2007-01-06 (Energy Economics)
- NEP-IND-2007-01-06 (Industrial Organization)
- NEP-MAC-2007-01-06 (Macroeconomics)
- NEP-MIC-2007-01-06 (Microeconomics)
- NEP-POL-2007-01-06 (Positive Political Economics)
- NEP-REG-2007-01-06 (Regulation)
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