This paper examines a framework in which politicians can decrease unemployment via active labor market policies (ALMP). We combine theoretical models on partisan and opportunistic cycles and assume that voters are ignorant of the necessary facts to make informed voting decisions. The model predicts that politicians have incentives for a strategic use of active labor market policies that leads to a political cycle in unemployment and budget deficit. We test the hypotheses predicted by the theoretical model using data from German states from 1985:1 to 2004:11. The results illustrate that opportunistic behavior of politicians can explain the development of ALMP approximated by job-creation schemes.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
14270.
Find related papers by JEL classification: J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
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