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Political Price Cycles in Regulated Industries: Theory and Evidence

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Author Info
Rodrigo Moita
Claudio Paiva
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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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/260.

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Length: 22 pages
Date of creation: 27 Nov 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/260

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Related research
Keywords: Political cycle ; regulated prices ; gasoline prices ; Political economy ; Price controls ; Gasoline prices ;

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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.:
  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 & Economics, University of Chicago Press, vol. 33(1), pages 65-101, April.
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  2. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Blackwell Publishing, vol. 42(2), pages 169-90, April. [Downloadable!] (restricted)
  4. Paiva, Claudio A. C., 1996. "Electoral price cycles in regulated industries," World Development, Elsevier, vol. 24(10), pages 1673-1680, October. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring. [Downloadable!] (restricted)
  7. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
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This page was last updated on 2009-11-20.

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