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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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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. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  2. Peltzman, Sam, 1993. "George Stigler's Contribution to the Economic Analysis of Regulation," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 818-32, October.
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  11. Bishop, John Hillman, 1989. "Is the Test Score Decline Responsible for the Productivity Growth Decline?," American Economic Review, American Economic Association, vol. 79(1), pages 178-97, March.
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  15. 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.
  16. O'Neill, June, 1990. "The Role of Human Capital in Earnings Differences between Black and White Men," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 25-45, Fall.
  17. 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.
  18. Steven G. Rivkin, 1995. "Black/White Differences in Schooling and Employment," Journal of Human Resources, University of Wisconsin Press, vol. 30(4), pages 826-852.
  19. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  20. Ioannis N. Kessides, 2004. "Reforming Infrastructure : Privatization, Regulation, and Competition," World Bank Publications, The World Bank, number 13525, October.
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