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Election Results and Opportunistic Policies: An Integrated Approach

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Author Info
Toke S. Aidt () (University of Cambridge)
Francisco José Veiga () (Universidade do Minho - NIPE)
Linda Gonçalves Veiga () (Universidade do Minho - NIPE)

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Abstract

The literature on political business cycles suggests that politicians systematically manipulate economic and fiscal conditions before elections. The literature on vote and popularity functions suggests that economic conditions systematically affect election outcomes. This paper integrates these two strands of literature. We use Rogo? (1990)’s model of the rational political business cycle to derive the two-way relationship between the win-margin of the incumbent politician and the size of the opportunistic distortion of fiscal policy. This relationship is estimated, for a panel of 275 Portuguese municipalities (from 1979 to 2001), as a system of simultaneous equations (by GMM). The results clearly support the theoretical predictions: (1) opportunism pays o?, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when they expect a close election race.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 24/2007.

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Date of creation: 2007
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Handle: RePEc:nip:nipewp:24/2007

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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Related research
Keywords: Voting and popularity functions opportunism rational political business cycles local government system estimation Portugal.

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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    Other versions:
  4. Frey, Bruno S & Schneider, Friedrich, 1978. "A Politico-Economic Model of the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(350), pages 243-53, June. [Downloadable!] (restricted)
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  6. Francisco José Veiga & Linda Gonçalves Veiga, 2004. "Political Business Cycles at the Municipal Level," NIPE Working Papers 4/2004, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
  7. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Francisco José Veiga & Linda Gonçalves Veiga, 2000. "Popularity functions, partisan effects and support in Parliament," NIPE Working Papers 8/2001, NIPE - Universidade do Minho. [Downloadable!]
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  15. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May. [Downloadable!] (restricted)
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  17. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Blackwell Publishing, vol. 55(1), pages 1-16, January. [Downloadable!] (restricted)
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  18. Galli, Emma & Rossi, Stefania P S, 2002. " Political Budget Cycles: The Case of the Western German Lander," Public Choice, Springer, vol. 110(3-4), pages 283-303, March. [Downloadable!] (restricted)
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