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Political Price Cycles in Regulated Industries

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  • Claudio Paiva
  • Rodrigo Moita

Abstract

This 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 Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/260.

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Length: 22
Date of creation: 01 Nov 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/260

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Related research

Keywords: Gasoline prices; Price controls; election; voters; elections; oil prices; international oil prices; gasoline price; election campaign; crude oil; economic studies; currency units; fuel prices; political science; crude oil prices; voter; election results; economic regulation; political parties; presidential elections;

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References

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  1. Spiller, Pablo T, 1990. "Politicians, Interest Groups, and Regulators: A Multiple-Principals Agency Theory of Regulation, or "Let Them Be Bribed."," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 65-101, April.
  2. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  3. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  4. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  5. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  6. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  7. Paiva, Claudio A. C., 1996. "Electoral price cycles in regulated industries," World Development, Elsevier, vol. 24(10), pages 1673-1680, October.
  8. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
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Cited by:
  1. Rodrigo Menon S. Moita & Claudio Paiva, 2006. "Political Price Cycles In Regulated Industries: Theory And Evidence," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 126, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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