We develop and test a model of joint determination of the rate of economic growth and the results of presidential and Congressional elections in the United States. In our model, economic agents and voters have rational expectations. Economic policy varies as a function of control of the White House and the two-party shares in Congress. Politics affects growth through unanticipated policy shifts following the outcome of presidential elections. The economy influences elections as voters use past realizations of growth to make rational inferences about the "competency" level of the incumbent administration. Elections are also influenced by voters using their midterm Congressional votes to moderate the policies of the incumbent administration. The theoretical model is used to generate a recursive system of equations in which the dependent variables are the growth rate and the vote shares in presidential and Congressional elections. The theory implies several restrictions on the equations. Tests of the restrictions generally support the model; however, the results support the traditional view of naive retrospective voting as well as the "rational" retrospective voting posited in the model.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
3611.
Length: Date of creation: Feb 1991 Date of revision: Publication status: published as With Jeffrey Sachs, published as "Political Parties and the Business Cyclein the United States, 1948-1984", Journal of Money, Credit and Banking, Vol. 20, no. 1 (1988): 63-82. Handle: RePEc:nbr:nberwo:3611
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